GAO

United States General Accounting Office

Office of the General Counsel

March 2001 PRINCIPLES OF 

FEDERAL 

APPROPRIATIONS 

LAW

Second Edition 

Volume IV

GAO-01-179SP

Page i GAO-01-179SP Appropriations Law-Vol. IV

Foreword

Volume IV completes, in substance, the second edition of the 

Principles of Federal Appropriations Law. It covers goods and 

services, real property, boards and commissions, nonappropriated 

fund instrumentalities, corporations, and trust funds. Later this 

year, we will publish our final volume in this second edition, Volume 

V. Volume V will contain a comprehensive index and tables of 

authorities.

Later in this volume, a memoriam notes the contributions made to 

this project by Robert Centola. We also wish to recognize Valerie 

Barnes, Bridget Beverly, Edda Emmanuelli-Perez, Joyce Harper, 

Karen Holliday, Gary Kepplinger, Lydia Koeller, Neill Martin-Rolsky, 

Nancy Mufti, Wanda Okoro, and Barbara Timmerman, who also 

made major contributions to the production of volumes IV and V.

Finally, we thank our readers for their support of the preceding 

volumes and trust that Principles of Federal Appropriations Law

continues to serve as a useful reference.

Anthony Gamboa

General Counsel

March 2001
Page ii GAO-01-179SP Appropriations Law-Vol. IV

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Page iii GAO-01-179SP Appropriations Law-Vol. IV

In Memoriam:

Robert J. Centola

(1942—1999)

The Principles of Federal Appropriations Law—its 

comprehensiveness and accuracy, its structure and tone—reflects 

the influence, perseverance, and devotion of Bob Centola. For more 

than a dozen years, Bob worked on this second edition of “the Red 

Book,” producing the first three volumes. Bob was working on this 

volume when he passed away in April 1999. We dedicate Volume IV 

to his memory.

Bob brought innumerable talents to this effort, including dogged and 

precise legal research, clarity of thinking, and especially clarity of 

writing—simple, concise, insightful, enjoyable writing. Bob's sure 

hand wrote to an audience broader than the government world of 

fiscal lawyers, and guided us through the mine fields of legalese and 

jargon and around dangerously obscure rationalizations. His 

breadth of vision helped make the Red Book’s second edition the

standard reference on appropriations law for government finance 

and accounting officers, fiscal lawyers, congressional staff and the 

public at large. Citations to it turn up everywhere, including 

decisions of the highest court in the land, the United States Supreme 

Court.

Bob received many awards recognizing his exceptional skills as a 

lawyer, and was routinely assigned challenging tasks, including this 

one, that would test the mettle of many an attorney. He carried out 

each of those tasks in good humor, and with a thoroughness of 

analysis, insight, and precision that we, his friends and colleagues, 

admired and envied. The Principles of Federal Appropriations Law

stands as a lasting tribute to Bob Centola.
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Page v GAO-01-179SP Appropriations Law-Vol. IV

Summary of Contents

Volume I Chapter 1 - Introduction

Chapter 2 - The Legal Framework

Chapter 3 - Agency Regulations and Administrative Discretion

Chapter 4 - Availibility of Appropriations: Purpose

Chapter 5 - Availibility of Appropriations: Time

Volume II Chapter 6 - Availability of Appropriations: Amount

Chapter 7 - Obligation of Appropriations

Chapter 8 - Continuing Resolutions

Chapter 9 - Liability and Relief of Accountable Officers

Chapter 10 - Federal Assistance: Grants and Cooperative Agreements

Chapter 11 - Federal Assistance: Guaranteed and Insured Loans

Volume III Chapter 12 - Claims Against the United States

Chapter 13 - Debt Collection

Chapter 14 - Payment of Judgments

Volume IV Chapter 15 - Acquisition and Provision of Goods and Services

Chapter 16 - Real Property

Chapter 17 - Miscellaneous Topics

Volume V Tables of Authorities Cited

Index
Page vi GAO-01-179SP Appropriations Law-Vol. IV

“[I]n most matters it is more important that the applicable rule 

of law be settled than that it be settled right.” Burnet v.

Coronado Oil & Gas Co., 285 U.S. 393, 406 (1932) (Justice 

Louis Brandeis, dissenting).

Abbreviations

APA Administrative Procedure Act

BLM Bureau of Land Management

CDA Contract Disputes Act of 1978

CCC Commodities Credit Corporation

C.F.R. Code of Federal Regulations

EAJA Equal Access to Justice Act

EEOC Equal Employment Opportunity Commission

FAR Federal Acquisition Regulation

FY Fiscal Year

GAO General Accounting Office

GSA General Services Administration

HUD Department of Housing and Urban Development

IRS Internal Revenue Service

NRC Nuclear Regulatory Commission

OMB Office of Management and Budget

SBA Small Business Administration

TFM Treasury Financial Manual

U.S.C. United States Code

UTRA Uniform Relocation Assistance and Real Property 

Acquisition Policies Act
Page vii GAO-01-179SP Appropriations Law-Vol. IV

Detailed Table of Contents

Volume IV

Chapters 15-17

Chapter 15

Acquisition and

Provision of 

Goods and Services

16

A. Acquisition and Disposal of Personal Property for 

Government Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-4

1. GSA Supply Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-4

2. Stationery and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 15-8

3. Exchange/Sale Authority . . . . . . . . . . . . . . . . . . . . . . . . . 15-9

4. Disposal of Personal Property . . . . . . . . . . . . . . . . . . . . 15-14

B. Interagency Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 15-21

1. The Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-21

a. Origin, Legislative History, General Requirements . 15-21

(1) Funds available . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-24

(2) Interest of the government . . . . . . . . . . . . . . . . . . 15-25

(3) Performing agency’s “position” . . . . . . . . . . . . . . 15-25

(4) Lower cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-27

(5) Written agreement . . . . . . . . . . . . . . . . . . . . . . . . . 15-28

b. Who Is Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-29

c. Fiscal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-31

(1) Payment: types and accounting . . . . . . . . . . . . . 15-31

(2) “Actual cost”: meaning and application . . . . . . . 15-36

(3) Obligation and deobligation . . . . . . . . . . . . . . . . . 15-42

(4) Applicability of limitations and restrictions . . . . 15-45

(5) Accountability issues . . . . . . . . . . . . . . . . . . . . . . 15-49

d. What Work or Services May Be Performed . . . . . . . 15-52

(1) Details of personnel . . . . . . . . . . . . . . . . . . . . . . . . 15-52

(2) Loans of personal property . . . . . . . . . . . . . . . . . 15-57

(3) Common services . . . . . . . . . . . . . . . . . . . . . . . . . 15-60

(4) Other examples . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-62

e. What Work or Services May Not Be Performed . . . 15-66

f. Contracting Out and “Off-Loading” . . . . . . . . . . . . . . 15-70

2. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-74

3. Franchise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-79

C. Revolving Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-81

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-81

a. Concept and Definition . . . . . . . . . . . . . . . . . . . . . . . . 15-81

b. Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-84

(1) Public enterprise revolving fund . . . . . . . . . . . . . 15-84

(2) Intragovernmental revolving fund . . . . . . . . . . . . 15-84

(3) Trust revolving fund . . . . . . . . . . . . . . . . . . . . . . . 15-87

c. Congressional Control . . . . . . . . . . . . . . . . . . . . . . . . 15-87
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2. Creation/Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . 15-90

3. Receipts and Reimbursements . . . . . . . . . . . . . . . . . . . . 15-93

4. Expenditures/Availability . . . . . . . . . . . . . . . . . . . . . . . . 15-97

a. Status as Appropriation . . . . . . . . . . . . . . . . . . . . . . . 15-97

b. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-99

c. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-104

d. Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-107

e. Obligation Requirement . . . . . . . . . . . . . . . . . . . . . . . 15-110

5. Augmentation and Impairment . . . . . . . . . . . . . . . . . . . 15-114

6. Property Management and Utilization . . . . . . . . . . . . . . 15-120

7. Revolving Funds in the Department of Defense . . . . . 15-125

D. User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-129

1. Providing Goods or Services to Private Parties . . . . . . 15-129

2. The Concept of User Charges . . . . . . . . . . . . . . . . . . . . . 15-132

3. The Independent Offices Appropriation Act . . . . . . . . 15-135

a. Origin and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 15-135

b. Fees v. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-137

c. Establishing the Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 15-139

(1) Need for regulations . . . . . . . . . . . . . . . . . . . . . . . 15-139

(2) Benefit under the IOAA . . . . . . . . . . . . . . . . . . . . . 15-140

(3) Public v. private benefit . . . . . . . . . . . . . . . . . . . . 15-145

(4) Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-148

d. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-151

4. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-154

a. Subsection (c) of the IOAA . . . . . . . . . . . . . . . . . . . . . 15-154

b. IOAA Incorporated by Reference . . . . . . . . . . . . . . . 15-156

c. Statutes “In Pari Materia” . . . . . . . . . . . . . . . . . . . . . . 15-157

d. Statutes Entirely Independent of the IOAA . . . . . . . 15-159

5. Disposition of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-165

a. Fees Under the IOAA . . . . . . . . . . . . . . . . . . . . . . . . . 15-165

b. Fees Under Other Authorities . . . . . . . . . . . . . . . . . . 15-165

(1) Miscellaneous receipts . . . . . . . . . . . . . . . . . . . . . 15-166

(2) Credit to agency’s appropriation . . . . . . . . . . . . . 15-167

(3) Special account or fund . . . . . . . . . . . . . . . . . . . . 15-169

6. Customs Service: A Case Study . . . . . . . . . . . . . . . . . . . 15-171

7. User Fee as Grant Condition . . . . . . . . . . . . . . . . . . . . . 15-176

E. Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

1. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

a. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . 15-179

b. Price Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184
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2. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-188

a. The “Official Purpose” Limitation . . . . . . . . . . . . . . . 15-188

b. GSA Motor Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-198

c. Expenditure Control Requirements . . . . . . . . . . . . . 15-201

3. Chauffeurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-202

Chapter 16

Real Property

16

A. Introduction and Terminology . . . . . . . . . . . . . . . . . . . . 16-5

B. Acquisition of Real Property for Government Use . 16-10

1. The Fifth Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-11

2. Federal Land Acquisition Policy . . . . . . . . . . . . . . . . . . 16-13

3. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . 16-18

a. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-19

(1) Debt security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20

(2) Donated property/funds . . . . . . . . . . . . . . . . . . . . 16-21

(3) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-21

(4) Indian tribal funds . . . . . . . . . . . . . . . . . . . . . . . . . 16-23

b. Types of Statutory Authority . . . . . . . . . . . . . . . . . . . 16-23

(1) Express versus implied authority . . . . . . . . . . . . 16-23

(2) Forms of express authority . . . . . . . . . . . . . . . . . 16-24

c. Effect of Noncompliance . . . . . . . . . . . . . . . . . . . . . . 16-30

4. Title Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-31

a. Title Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-31

b. Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-36

c. Title Evidence Expenses . . . . . . . . . . . . . . . . . . . . . . . 16-37

(1) Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-37

(2) Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-38

(3) Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-39

5. Methods of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . 16-41

a. Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-41

b. Involuntary Acquisition . . . . . . . . . . . . . . . . . . . . . . . 16-43

(1) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-43

(2) Sources of authority . . . . . . . . . . . . . . . . . . . . . . . 16-44

(3) Legislative taking . . . . . . . . . . . . . . . . . . . . . . . . . . 16-45

(4) Declaration of Taking Act . . . . . . . . . . . . . . . . . . . 16-46

(5) “Complaint only” condemnation . . . . . . . . . . . . . 16-51

(6) Inverse condemnation . . . . . . . . . . . . . . . . . . . . . . 16-53

6. Obligation of Appropriations for Land Acquisition . . . 16-54

a. Voluntary Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-54

b. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-55
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Page x GAO-01-179SP Appropriations Law-Vol. IV

7. Expenses Incident to Real Property Acquisition . . . . . 16-58

a. Expenses Incident to Title Transfer . . . . . . . . . . . . . 16-58

b. Expenses Incident to Litigation . . . . . . . . . . . . . . . . . 16-60

(1) Attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-60

(2) Litigation expenses . . . . . . . . . . . . . . . . . . . . . . . . 16-62

C. Relocation Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-63

1. Uniform Relocation Act: Introduction and Overview 16-63

2. The Threshold Determination: Meaning of 

“Displaced Person” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-66

3. Types and Payment of Benefits . . . . . . . . . . . . . . . . . . . 16-73

a. Moving and Related Expenses . . . . . . . . . . . . . . . . . . 16-73

(1) Residential displacements . . . . . . . . . . . . . . . . . . 16-73

(2) Commercial displacements . . . . . . . . . . . . . . . . . 16-74

b. Replacement Housing Benefits . . . . . . . . . . . . . . . . . 16-76

(1) Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-76

(2) Tenants and “90-day homeowners” . . . . . . . . . . . 16-79

c. Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-80

d. “Last Resort” Replacement Housing . . . . . . . . . . . . . 16-81

e. Federally Assisted Programs and Projects . . . . . . . . 16-84

f. Procedures and Payment . . . . . . . . . . . . . . . . . . . . . . . 16-87

4. Public Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-88

a. The Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-88

b. Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . 16-92

(1) Uniform Relocation Act . . . . . . . . . . . . . . . . . . . . 16-92

(2) 23 U.S.C. § 123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-94

(3) Other statutory provisions . . . . . . . . . . . . . . . . . . 16-95

D. Jurisdiction Over Federal Land: The 

Federal Enclave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-97

1. Acquisition of Federal Jurisdiction . . . . . . . . . . . . . . . . 16-97

2. Specific Areas of Concern . . . . . . . . . . . . . . . . . . . . . . . . 16-105

a. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-105

b. Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-107

c. State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-108

3. Proprietorial Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 16-113

E. Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

1. Some General Principles . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

a. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

b. Application of Fiscal Law Principles . . . . . . . . . . . . 16-121

c. Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . 16-124

d. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-127

(1) Advance payment . . . . . . . . . . . . . . . . . . . . . . . . . 16-128

(2) Payment to legal representative . . . . . . . . . . . . . 16-129
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Page xi GAO-01-179SP Appropriations Law-Vol. IV

(3) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . 16-129

2. Statutory Authorities and Limitations . . . . . . . . . . . . . . 16-132

a. Federal Property and Administrative Services Act . 16-132

b. Prospectus Requirement . . . . . . . . . . . . . . . . . . . . . . 16-136

c. Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-137

d. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-140

e. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . . . 16-141

f. Rental in District of Columbia . . . . . . . . . . . . . . . . . . 16-144

g. Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-148

h. Some Agency-Specific Authorities . . . . . . . . . . . . . . 16-149

3. Foreign Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-150

4. Lease-Purchase Transactions . . . . . . . . . . . . . . . . . . . . . 16-153

F. Public Buildings and Improvements . . . . . . . . . . . . . . . 16-161

1. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

a. General Funding Provisions . . . . . . . . . . . . . . . . . . . . 16-161

(1) 41 U.S.C. § 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

(2) Contract authority under partial appropriations 16-167

(3) Duration of construction appropriations . . . . . . 16-168

(4) Design fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-170

b. Some Agency-Specific Authorities . . . . . . . . . . . . . . 16-176

(1) Military construction . . . . . . . . . . . . . . . . . . . . . . . 16-176

(2) Continuing contracts: two variations . . . . . . . . . 16-178

(3) 7 U.S.C. § 2250 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-181

(4) 15 U.S.C. § 278d . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-182

c. Public Buildings Act . . . . . . . . . . . . . . . . . . . . . . . . . . 16-183

d. Scope of Construction Appropriations . . . . . . . . . . . 16-187

2. Operation and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-192

a. Who’s in Charge? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-192

b. Allocation of Space . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-193

c. Alterations and Repairs . . . . . . . . . . . . . . . . . . . . . . . . 16-194

d. Maintenance and Protective Services . . . . . . . . . . . . 16-196

e. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-197

f. Use Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-201

g. Payment of Rent by Federal Agencies . . . . . . . . . . . 16-201

G. Improvements to Property Not Owned 

By the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-206

1. The Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-206

2. Some Specific Applications . . . . . . . . . . . . . . . . . . . . . . 16-210

a. Leased Premises/Property . . . . . . . . . . . . . . . . . . . . . 16-210

b. Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-213

c. Public Improvements . . . . . . . . . . . . . . . . . . . . . . . . . 16-216

d. Federal Aviation Administration . . . . . . . . . . . . . . . . 16-217
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e. Private Residences . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-219

H. Disposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-220

1. The Property Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-220

2. Disposal Under the Federal Property and Administrative 

Services Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-221

a. Excess Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-222

b. Surplus Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-224

c. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 16-230

d. Deduction of Expenses . . . . . . . . . . . . . . . . . . . . . . . . 16-232

e. Disposal Under Other Authorities . . . . . . . . . . . . . . . 16-233

3. Use by Nongovernment Parties . . . . . . . . . . . . . . . . . . . 16-235

a. Leasing and Concessions . . . . . . . . . . . . . . . . . . . . . . 16-235

(1) Outleasing in general . . . . . . . . . . . . . . . . . . . . . . . 16-235

(2) 40 U.S.C. § 303b . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-239

(3) Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-242

b. Granting of Revocable License . . . . . . . . . . . . . . . . . 16-244

4. Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-246

Chapter 17

Miscellaneous Topics

16

A. Boards, Committees, and Commissions . . . . . . . . . . . 17-5

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5

2. Title 31 Funding Provisions . . . . . . . . . . . . . . . . . . . . . . 17-8

a. 1842: The First Attempt . . . . . . . . . . . . . . . . . . . . . . . 17-9

b. 1909: The Tawney Amendment . . . . . . . . . . . . . . . . . 17-11

c. 1944: The Russell Amendment . . . . . . . . . . . . . . . . . 17-15

3. Interagency Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-16

a. Joint Funding of Common-Interest Project . . . . . . . 17-16

b. 1945: The First Interagency Funding Statute . . . . . 17-18

c. Appropriation Act Provisions . . . . . . . . . . . . . . . . . . . 17-20

4. The Federal Advisory Committee Act . . . . . . . . . . . . . . 17-25

a. Overview and Applicability . . . . . . . . . . . . . . . . . . . . 17-25

(1) Definition and specific exemptions . . . . . . . . . . . 17-27

(2) Advisory versus operational . . . . . . . . . . . . . . . . . 17-30

(3) Who is being advised? . . . . . . . . . . . . . . . . . . . . . . 17-31

(4) “Established or utilized” . . . . . . . . . . . . . . . . . . . . 17-33

(5) Other factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-35

b. Creation and Funding . . . . . . . . . . . . . . . . . . . . . . . . . 17-38

(1) Statutory committees: creation . . . . . . . . . . . . . . 17-39

(2) Statutory committees: funding . . . . . . . . . . . . . . 17-43

(3) Committees established by the executive 

branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-50
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(4) Donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-56

B. Government Corporations. . . . . . . . . . . . . . . . . . . . . . . . 17-59

1. Introduction: The Theory and the Controversy . . . . . 17-59

2. The Problem of Definition . . . . . . . . . . . . . . . . . . . . . . . 17-68

a. Government Corporations . . . . . . . . . . . . . . . . . . . . . 17-68

b. Government-Sponsored Enterprises . . . . . . . . . . . . . 17-70

c. Federally Chartered Corporations . . . . . . . . . . . . . . . 17-73

d. Federally Funded Research and Development 

Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-81

e. Summing Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-85

3. Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-87

a. Historical Background and Purpose . . . . . . . . . . . . . 17-88

b. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . 17-93

4. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-101

a. Government Corporation Control Act . . . . . . . . . . . 17-101

(1) Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-101

(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-102

(3) Budget provisions . . . . . . . . . . . . . . . . . . . . . . . . . 17-105

(4) Other financial controls . . . . . . . . . . . . . . . . . . . . 17-107

(5) Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-109

b. Appointment and Control of Directors . . . . . . . . . . . 17-113

5. Sources of Funds and Financing . . . . . . . . . . . . . . . . . . 17-119

a. Types of Financing: Government . . . . . . . . . . . . . . . 17-119

(1) Direct appropriations . . . . . . . . . . . . . . . . . . . . . . 17-119

(2) Federal borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 17-121

(3) Federal ownership of stock . . . . . . . . . . . . . . . . . 17-124

b. Types of Financing: Private . . . . . . . . . . . . . . . . . . . . 17-125

(1) Sources of private financing . . . . . . . . . . . . . . . . . 17-125

(2) Market perception of implied backing by 

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-128

(3) Statutory controls . . . . . . . . . . . . . . . . . . . . . . . . . 17-129

6. Fiscal Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-130

a. Account Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-130

b. Status of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-134

c. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . 17-137

(1) “Character and necessity” provision . . . . . . . . . . 17-137

(2) “Without regard” clause . . . . . . . . . . . . . . . . . . . . 17-141

(3) Laws expressly applicable . . . . . . . . . . . . . . . . . . 17-143

(4) Appropriation act provisions . . . . . . . . . . . . . . . . 17-145

(5) Other Title 31 provisions . . . . . . . . . . . . . . . . . . . 17-147

d. Program Implementation . . . . . . . . . . . . . . . . . . . . . . 17-150

(1) Commodity Credit Corporation . . . . . . . . . . . . . . 17-152
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Page xiv GAO-01-179SP Appropriations Law-Vol. IV

(2) Bonneville Power Administration . . . . . . . . . . . . 17-155

(3) Amtrak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-159

7. Application of Other Laws . . . . . . . . . . . . . . . . . . . . . . . 17-163

a. Civil Service Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-164

b. Procurement Laws and Regulations . . . . . . . . . . . . . 17-170

(1) 41 U.S.C. § 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-171

(2) Federal Property and Administrative 

Services Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-171

(3) Office of Federal Procurement Policy Act . . . . . 17-172

(4) Federal Acquisition Regulation . . . . . . . . . . . . . . 17-172

(5) Competition in Contracting Act . . . . . . . . . . . . . . 17-173

(6) Other statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-174

c. General Management Laws . . . . . . . . . . . . . . . . . . . . 17-175

(1) Inspector General Act . . . . . . . . . . . . . . . . . . . . . . 17-175

(2) Federal Managers’ Financial Integrity Act 

of 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-176

(3) Chief Financial Officers Act . . . . . . . . . . . . . . . . . 17-177

(4) Government Performance and Results Act . . . . 17-177

(5) Government Management Reform Act of 1994 . 17-177

(6) Federal Financial Management Improvement 

Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-178

d. Property Management . . . . . . . . . . . . . . . . . . . . . . . . . 17-178

e. Freedom of Information, Privacy Acts . . . . . . . . . . . 17-180

f. Printing and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . 17-182

g. Criminal Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-184

8. Claims and Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-185

a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . 17-185

(1) Claims settlement authority . . . . . . . . . . . . . . . . . 17-185

(2) Federal Tort Claims Act . . . . . . . . . . . . . . . . . . . . 17-186

(3) Contract Disputes Act . . . . . . . . . . . . . . . . . . . . . . 17-189

(4) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . 17-190

(5) Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-191

(6) Prompt Payment Act . . . . . . . . . . . . . . . . . . . . . . . 17-192

(7) False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . 17-193

(8) Interagency claims . . . . . . . . . . . . . . . . . . . . . . . . . 17-194

b. Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-195

c. Litigation in the Courts . . . . . . . . . . . . . . . . . . . . . . . . 17-199

(1) Sovereign immunity . . . . . . . . . . . . . . . . . . . . . . . . 17-199

(2) Sue-and-be-sued clauses . . . . . . . . . . . . . . . . . . . . 17-199

(3) The Tucker Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-204

(4) Liability for Costs and Remedies of Litigation . . 17-206

(5) Sovereign Immunity from State and Local Taxes 17-209
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Page xv GAO-01-179SP Appropriations Law-Vol. IV

(6) Litigation authority . . . . . . . . . . . . . . . . . . . . . . . . 17-213

9. Termination of Government Corporations . . . . . . . . . . 17-215

C. Nonappropriated Fund Instrumentalities . . . . . . . . . 17-217

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-217

a. Historical Background . . . . . . . . . . . . . . . . . . . . . . . . 17-218

b. Defining the Nonappropriated Fund Activity . . . . . 17-223

2. Legal Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-226

a. Authority for Creation . . . . . . . . . . . . . . . . . . . . . . . . . 17-226

b. Relationship to the United States Government . . . . 17-227

3. Sources of Funding: The Use of Appropriated 

Funds for Nonappropriated Fund Instrumentalities . . 17-230

a. Self-Supporting or Subsidized? . . . . . . . . . . . . . . . . . 17-230

b. Appropriated Funds for Morale and Welfare: 

The Early Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-230

c. The Current Trend: Use of Appropriated Funds . . . 17-231

d. Other Issues in Appropriated Fund Support . . . . . . 17-238

e. Borrowing by Nonappropriated Fund Activities . . . 17-240

4. Transactions with Federal Agencies . . . . . . . . . . . . . . . 17-241

a. Economy Act and Intra-Agency Orders . . . . . . . . . . 17-241

b. Contracting to Sell Goods and Services to Agencies 17-242

c. Authority under 10 U.S.C. § 2482a . . . . . . . . . . . . . . . 17-244

5. Nonappropriated Fund Contracting . . . . . . . . . . . . . . . 17-245

a. Federal Procurement Laws and Regulations . . . . . . 17-245

b. Use of Federal Agency Procurement Process . . . . . 17-246

6. Debts Due Nonappropriated Fund Activities . . . . . . . . 17-247

7. Nonappropriated Fund Activity Property . . . . . . . . . . . 17-248

8. Management of Nonappropriated Fund Activities . . . 17-249

a. Regulation and Oversight . . . . . . . . . . . . . . . . . . . . . . 17-249

b. Authority to Audit NAFIs . . . . . . . . . . . . . . . . . . . . . . 17-250

(1) GAO Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 17-250

(2) Other Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-251

(3) Settlement of Accounts . . . . . . . . . . . . . . . . . . . . . 17-251

(4) Bid Protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-252

9. Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-253

a. Immunity From State and Local Taxation . . . . . . . . 17-254

b. Immunity From Suit . . . . . . . . . . . . . . . . . . . . . . . . . . 17-254

c. Payment of Judgments . . . . . . . . . . . . . . . . . . . . . . . . 17-256

10. Status of Nonappropriated Fund Activity Employees 17-257

a. Applicability of Civil Service Laws . . . . . . . . . . . . . . 17-258

(1) Civil Service Reform Act of 1978 . . . . . . . . . . . . . 17-259

(2) Other Employment Related Laws . . . . . . . . . . . . 17-262
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D. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-269

1. Federal Funds and Trust Funds . . . . . . . . . . . . . . . . . . . 17-271

a. Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-272

b. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-273

c. Congressional Prerogatives . . . . . . . . . . . . . . . . . . . . 17-274

2. The Government as Trustee—Creation of a Trust . . . . 17-275

a. Property of Others Controlled by the United States 17-275

b. Trust Funds Designated by Statute . . . . . . . . . . . . . . 17-282

c. Donated Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-284

3. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . 17-286

a. Permanent Appropriation Repeal Act, 1934 . . . . . . . 17-286

b. Available Uses of Trust Funds . . . . . . . . . . . . . . . . . . 17-287

(1) Donated funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-287

(2) Property of others . . . . . . . . . . . . . . . . . . . . . . . . . 17-289

(3) Statutory trust funds . . . . . . . . . . . . . . . . . . . . . . . 17-290

c. Intergovernmental Claims . . . . . . . . . . . . . . . . . . . . . 17-292

4. Concepts of Amount and Time . . . . . . . . . . . . . . . . . . . . 17-293

5. Duty to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-296

6. Liability for Loss of Trust Funds . . . . . . . . . . . . . . . . . . 17-298

7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-300

a. Setoff and Levy against Trust Funds . . . . . . . . . . . . . 17-300

b. Unclaimed Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-301

8. Federal Trust Funds and the Budget . . . . . . . . . . . . . . . 17-302

16
Page 15-1 GAO-01-179SP Appropriations Law-Vol. IV

Acquisition and Provision of Goods 

and Services

Chapter 15

16

A. Acquisition and Disposal of Personal Property for Government Use . . . . . . . . . . . 15-4

1. GSA Supply Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-4

2. Stationery and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-8

3. Exchange/Sale Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-9

4. Disposal of Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-14

B. Interagency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-21

1. The Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-21

a. Origin, Legislative History, General Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-21

(1) Funds available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-24

(2) Interest of the government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-25

(3) Performing agency’s “position” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-25

(4) Lower cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-27

(5) Written agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-28

b. Who Is Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-29

c. Fiscal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-31

(1) Payment: types and accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-31

(2) “Actual cost”: meaning and application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-36

(3) Obligation and deobligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-42

(4) Applicability of limitations and restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-45

(5) Accountability issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-49

d. What Work or Services May Be Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-52

(1) Details of personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-52

(2) Loans of personal property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-57

(3) Common services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-60

(4) Other examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-62

e. What Work or Services May Not Be Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-66

f. Contracting Out and “Off-Loading” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-70

2. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-74

3. Franchise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-79

C. Revolving Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-81

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-81

a. Concept and Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-81

b. Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-84

(1) Public enterprise revolving fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-84

(2) Intragovernmental revolving fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-84

(3) Trust revolving fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-87

c. Congressional Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-87

2. Creation/Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-90

3. Receipts and Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-93
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4. Expenditures/Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-97

a. Status as Appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-97

b. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-99

c. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-104

d. Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-107

e. Obligation Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-110

5. Augmentation and Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-114

6. Property Management and Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-120

7. Revolving Funds in the Department of Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-125

D. User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-129

1. Providing Goods or Services to Private Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-129

2. The Concept of User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-132

3. The Independent Offices Appropriation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-135

a. Origin and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-135

b. Fees v. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-137

c. Establishing the Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-139

(1) Need for regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-139

(2) Benefit under the IOAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-140

(3) Public v. private benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-145

(4) Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-148

d. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-151

4. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-154

a. Subsection (c) of the IOAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-154

b. IOAA Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-156

c. Statutes “In Pari Materia” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-157

d. Statutes Entirely Independent of the IOAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-159

5. Disposition of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-165

a. Fees Under the IOAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-165

b. Fees Under Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-165

(1) Miscellaneous receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-166

(2) Credit to agency’s appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-167

(3) Special account or fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-169

6. Customs Service: A Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-171

7. User Fee as Grant Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-176

E. Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

1. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

a. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

b. Price Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184
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2. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-188

a. The “Official Purpose” Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-188

b. GSA Motor Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-198

c. Expenditure Control Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-201

3. Chauffeurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-202
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Chapter 15

Acquisition and Provision of Goods and 

Services Chapte1r

In the course of performing its 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 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 Personal 

Property for 

Government Use

1. GSA Supply Programs The General Services Administration has broad authority over the 

acquisition of personal property for other government agencies. 

Section 201(a) of the Federal Property and Administrative Services 

Act of 1949, 40 U.S.C. § 481(a), authorizes GSA, if it determines it to 

be advantageous to the government in terms of economy, efficiency, 

or service, to do the following with respect to executive agencies:

“(1) subject to regulations prescribed by the Administrator for Federal 

Procurement Policy prescribe policies and methods of procurement and supply of 

personal property and nonpersonal services, including related functions . . . ;

“(2) operate . . . consolidate, take over, or arrange for the operation by any 

executive agency of warehouses, supply centers, repair shops, fuel yards, and other 

similar facilities; and

“(3) procure and supply personal property and nonpersonal services for the use of 

executive agencies in the proper discharge of their responsibilities . . . . ”
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Section 201(b)(1), 40 U.S.C. § 481(b)(1), authorizes GSA to provide 

the same services, upon request, to “any other Federal agency,” 

mixed ownership corporation, 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. 40 U.S.C. § 472(b). GSA published a detailed explanation 

and listing of who is eligible to use its supply services in 57 Fed. Reg. 

41503 (September 10, 1992).1

One way GSA implements its authority under the Federal Property 

Act is through its stock system described in 41 C.F.R. 

Subpt. 101-26.3. Basically, GSA maintains a stock of commonly used 

items which may be requisitioned by using agencies. Operations are 

financed through the revolving General Supply Fund (40 U.S.C. 

§ 756). At one time, the regulations provided for mandatory use, 

which GSA could waive upon request. See 63 Comp. Gen. 579, 

581-82 (1984). Now, the regulations provide a three-tiered system an 

agency can follow if it thinks that “alternative sources are more 

favorable.” If the total requirement is below a specified “de 

minimis” amount, the agency can simply procure elsewhere. If it is 

between that amount and a specified ceiling, the agency can procure 

elsewhere but must include a written justification in its purchase 

file. If the total requirement exceeds the ceiling, the agency must 

procure from GSA unless GSA grants a waiver. 41 C.F.R. 

§ 101-26.301(b). The determination that alternate sources are more 

favorable should not be based on price alone, and agencies should 

not divide requisitions to avoid the higher threshold requirements. 

Id. and § 101-26.301(c).

An agency which tries to procure a mandatory item on the open 

market without seeking a GSA waiver is acting beyond its authority 

and does not validly obligate its appropriation. See 63 Comp. 

Gen. at 582. The agency should not initiate the procurement action 

until GSA acts on the waiver request. 41 C.F.R. § 101-26.100-2(d); 

63 Comp. Gen. at 582; B-221536, June 12, 1986. If the agency does 

procure elsewhere in violation of the regulations, the vendor can be 

1

Our limited coverage here of the more common systems 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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paid if the standards for quantum valebant recovery are met, but the 

amount paid cannot exceed what the item would have cost had it 

been procured as a GSA stock item. 63 Comp. Gen. at 585. See also

34 Comp. Gen. 280 (1954); 30 Comp. Gen. 23 (1950).

Another of GSA’s basic supply systems is the Federal Supply 

Schedule system. GSA enters into requirements contracts with 

suppliers on either a single-award or multiple-award basis. As the 

term implies, a single-award contract is a contract with a single 

supplier for items or services on a schedule. Under a multiple-award 

schedule—known as GSA’s “MAS” program—GSA contracts with 

more than one supplier for comparable items on a schedule. The 

objective is to obtain, through consolidation and volume buying, 

lower prices than could be realized through individual-order 

purchasing. Federal Acquisition Regulation, codified in 48 C.F.R. 

§ 8.401(a) (hereafter cited as FAR; B-213966, January 25, 1984. 

Schedules are mandatory for some users, optional for others. Each 

schedule identifies its mandatory users. FAR, § 8.404(c)(3). GSA for 

many years included ordering instructions in the Federal Property 

Management Regulations, but dropped them in 1995. 60 Fed. Reg. 

19674 (April 20, 1995).

At one time, multiple award schedule contracts were entered into 

for 1 year only. In the early 1980s, GSA developed a system, which 

GAO approved in 63 Comp. Gen. 129 (1983), for entering into MAS 

contracts on a multi-year basis. Under that system, the government 

does not obligate itself to spend any money when it signs the MAS 

agreement. It merely promises that “if an agency determines that it 

has a requirement for a scheduled item, the agency will place an 

order for the item from a contractor if he has offered the lowest 

price.” Id. at 131. No obligation of appropriations takes place until a 

using agency determines that it has a requirement and issues a 

purchase order. Of course, the agency must have available 

appropriations when it does that.

While it has been suggested that this is illusory and unenforceable, it 

is GAO’s position that there is adequate consideration for a valid 

requirements contract even though there is no obligation in the 

appropriations accounting sense and even though the contract 

includes a “no guarantee that any quantities will be purchased” 

clause. 52 Comp. Gen. 732 (1973). See also B-259274, May 22, 1996 
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(“a naked contractual obligation that carries no financial exposure 

to the government does not violate the Antideficency Act”).

A mandatory user is required to purchase from the schedule unless 

one of the regulatory exemptions applies or GSA grants a waiver. 

B-237150, January 17, 1990; B-228302, January 13, 1988. One of the 

exemptions is for urgent delivery requirements. FAR, 

§ 8.404(c)(3)(i). Another is where a lower price for an identical item 

is available from a non-schedule source. Id. 48 C.F.R. 

§ 8.404(c)(3)(iv); B-224022 et al., January 5, 1987. “Identical” in this 

context means more than just functionally equivalent. B-219909.2, 

January 15, 1986. It means an “exact duplicate” (id.), or “same make 

and model” (FAR § 8.404(c)(3)(iv)). A mandatory MAS user is not 

required to select the vendor with the lowest price provided it can 

adequately justify its selection. B-231344, August 10, 1988; B-224219, 

January 23, 1987. The precise regulation cited in these two cases has 

been dropped, but the “best value” standard of FAR § 8.404(b) takes 

you to essentially the same place.

Quotations from Federal Supply Schedule vendors are not “offers” 

that the government “accepts.” Rather, they are regarded as 

informational responses. Therefore, there is no requirement that the 

quotation conform precisely to the agency’s request, nor for the 

agency’s delivery order to conform precisely to the quotation. 

B-232007, October 19, 1988; B-225575, May 1, 1987. Of course, any 

maximum order limitation must be followed. 69 Comp. Gen. 438 

(1990); B-230876, July 8, 1988.

The Supply Schedule system applies to nonpersonal services as well 

as personal property. For example, GSA is within its authority under 

the Federal Property Act to establish 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, September 18, 1995.

If a mandatory user determines that schedule items will not meet its 

specific needs but similar non-schedule items will, it can request a 

waiver from GSA. FAR § 8.404-3(a). See, e.g., B-252754.3, 

January 30, 1995. As with stock items, the agency is expected to 

defer initiating the procurement until GSA approves the request. 

FAR § 8.404-3(b). A non-schedule procurement in violation of the 
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regulations is an unauthorized act, but again as with stock items, the 

vendor can be paid if the quantum meruit/quantum valebant

standards are met. However, payment may not exceed the amount 

payable under an applicable mandatory Supply Schedule. B-213489, 

March 13, 1984; B-195123, July 11, 1979. In 69 Comp. Gen. 13 (1989), 

this rationale was extended to a non-mandatory schedule. In a few 

cases where the property was delivered and the vendor paid, GAO 

has had to grudgingly concede that corrective action was no longer 

feasible. 54 Comp. Gen. 488, 490 (1974); B-217302, March 19, 1985.

For a non-mandatory user, the decision whether to purchase from a 

Supply Schedule vendor or elsewhere is regarded as a business 

judgment within the contracting agency’s discretion. B-270483, 

March 12, 1996; B-232660, January 10, 1989.

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. Stationery and Supplies Originally enacted in 1868 (15 Stat. 246), 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 (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.
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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 included an 

exemption for the General Services Administration 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 Federal Property Act, that act’s 

definition of “executive agency,” 40 U.S.C. § 472(a), would 

presumably apply to “any executive department or independent 

establishment in the executive branch of the government, including 

any wholly owned Government corporation.” “This is almost 

identical to the definition in 5 U.S.C. § 105, which in turn would 

implicate 5 U.S.C. § 104 for the definition of “independent 

establishment.” See W.B. Fishburn Cleaners, Inc. v. Army & Air

Force Exchange Service, 374 F. Supp. 162, 165-166 (N.D. Tex. 1974). 

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.”

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).

3. Exchange/Sale Authority Section 201(c) of the Federal Property and Administrative Services 

Act of 1949, 40 U.S.C. § 481(c), provides:

“In acquiring personal property, any executive agency [subject to regulations of the 

General Services Administration, which in turn are subject to regulations of the 

Office of Federal Procurement Policy] may exchange or sell similar items and may 

apply the exchange allowance or proceeds of sale in such cases in whole or in part 
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payment for the property acquired: Provided, That any transaction carried out 

under the authority of this subsection shall be evidenced in writing.”

The reason for this legislation 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 201(c) 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 201(c) are outlined in B-169903-O.M., 

January 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., 

December 2, 1980.

Implementation of the exchange/sale authority is the primary 

responsibility of the General Services Administration, whose 

regulations are found in 41 C.F.R. Part 101-46, part of the Federal 

Property Management Regulations. 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.

The regulations authorize use of the exchange/sale authority only 

when the following conditions apply:

• The item sold or exchanged must be “similar to the item acquired.”

• The items sold or exchanged must not be excess, and the items 

acquired must be necessary to the conduct of approved programs.

• Subject to certain exceptions, “[o]ne item is to be acquired to 

replace one similar item.”
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• There must be an appropriate written administrative determination 

at the time of the exchange or sale.

• The transaction must foster the “economical and efficient 

accomplishment of an approved program.” 41 C.F.R. 

§ 101-46.202(b). 

If the exchange/sale authority applies, the agency is under no 

requirement to give precedence to other disposal options under the 

Federal Property Act, 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:

“(i) The replaced item and the acquired item are identical;

“(ii) The acquired item is designed and constructed for the same specific purpose as 

the replaced item, or both constitute parts or containers for identical or similar end 

items; or

“(iii) The acquired item and the replaced item both fall within a single Federal 

Supply Group [except for certain items listed elsewhere in the regulation as 

ineligible].” 41 C.F.R. § 101-46.202(b)(1). 

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

“designed and constructed for the same specific 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, 

February 14, 1945. So do vessels designed for hydrographic 

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 
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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., February 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 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, February 17, 1956 (another case involving U.S. Mint 

equipment we don’t understand either). 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 agency’s authority 

under 40 U.S.C. § 483(c) to 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, August 14, 1956 (41 miles of telephone line not “personal 

property”). Others are contained in the regulations. Items are not 

eligible for exchange/sale treatment if they are found in any of more 

than two dozen federal supply classification groups listed in 

41 C.F.R. § 101-46.202(a). The groups listed range from hand tools 

and office supplies to weapons and nuclear ordnance. Another 

provision specifies that the exchange/sale authority may not be used 
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if the acquisition is not otherwise authorized by law or is in 

contravention of an applicable restriction. 41 C.F.R. 

§§ 101-46.202(c)(1) and (2). 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). The exchange/sale authority may not be used to 

dispose of excess or surplus property. 41 C.F.R. § 101-46.202(c)(4). 

See B-163084, February 5, 1979; B-169903, July 27, 1970. Nor may it 

be used to dispose of scrap materials except scrap gold for fine gold 

(see B-163084, cited above), or property in new or unused condition. 

41 C.F.R. §§ 101-46.202(c)(8) and (9).

Long before the enactment of 40 U.S.C. § 481(c), 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 the Federal Property Act. 45 Comp. Gen. 671 

(1966); B-150296, March 14, 1963. The point was reflected in GSA’s 

regulations but was dropped in a 1988 revision. 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 thirdparty 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.” Id. 

at 134. 

While the requirement was still in the regulations at the time of that 

decision, the quoted passage suggests a significance independent of 

the regulations.

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, November 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).
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Of course, the main reason for the enactment of 40 U.S.C. § 481(c) 

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, section 5.5.D (1993), most of which has 

been incorporated into GSA’s regulations at 41 C.F.R. § 101-46.304. 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. 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 asmiscellaneous receipts, the theory being that it 

would no longer be a bona fide replacement.

4. 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. Those principles, discussed further in 

Chapter 16, are:

• Under the Property Clause of the Constitution (Art. IV, sec. 3, 

cl. 2), disposal of government property requires statutory authority.

• Congress has implemented the Property Clause primarily through 

the Federal Property and Administrative Services Act of 1949. The 

General Services Administration has primary responsibility for 

administering the Federal Property Act, and does so in turn through 

the Federal Property Management Regulations, 41 C.F.R. Ch. 101.

• 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.
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Upon determining that an item of personal property is no longer 

needed “for the purposes of the appropriation from, which it was 

purchased,” the agency’s first task is to see if it can be reassigned for 

use elsewhere in the agency. 40 U.S.C. § 483(c); 41 C.F.R. 

§ 101-43.102(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, government 

corporation, or the District of Columbia, or can redistribute the 

property through its own supply centers. 40 U.S.C. § 483(a)(1).

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, 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. § 483(a)(1). 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. § 101-43.309-3(a). This “no reimbursement” policy is within 

GSA’s discretion under the law. B-101646, February 11, 1977 (internal 

memorandum).

A little-known (and probably even less observed) statute is 40 U.S.C. 

§ 483b, which prohibits the use of appropriated funds “for the 

purchase of furniture by any department or agency in any branch of 

the Government if such requirements can reasonably be met . . . by 

transfer of excess furniture including rehabilitated furniture from 

other departments and agencies” in accordance with the Federal 

Property Act.

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. § 511. 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. 40 U.S.C. § 512. This broad authority includes transfer to 
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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 “supervision and direction over 

the disposition of surplus property.” 40 U.S.C. § 484(a). Another 

agency can sell surplus property only if it has specific authority 

which overrides the Federal Property Act or upon delegation from 

GSA. 56 Comp. Gen. 754 (1977). GSA’s regulations amount to a 

blanket delegation to authorized agencies to either sell their own 

surplus property or have GSA sell it for them for a fee. 41 C.F.R. 

§ 101-45.103-1.

Subsection (c) of 40 U.S.C. § 484, 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, and upon such other terms and conditions as 

the Administrator deems proper, and it may execute such documents for the 

transfer of title or other interest in property and take such other action as it deems 

necessary or proper to dispose of such property under the [Federal Property Act].”

With appropriate safeguards, GSA may, for example, sell surplus 

vehicles on consignment through private auction houses. 64 Comp. 

Gen. 149 (1984). Subsection (c) authorizes credit sales. The 

regulations require prior GSA approval. 41 C.F.R. § 101-45.304-9. 

Subject to GSA’s authority under the Federal Property Act, there is 

no statutory prohibition against accepting payment by credit card 

although certain conditions some issuers might like to impose may 

be unacceptable to the government. 52 Comp. Gen. 764 (1973).

Disposal by sale is governed by 40 U.S.C. § 484(e). Advertising for 

bids is the preferred method. 40 U.S.C. § 484(e)(1). The statute 

further provides that:

“award shall be made with reasonable promptness by notice to the responsible 

bidder whose bid, conforming to the invitation for bids, will be most advantageous 

to the Government, price and other factors considered: Provided, That all bids may 

be rejected when it is in the public interest to do so.” 40 U.S.C. § 484(e)(2)(C). 

Generally speaking, this requires award to the highest bidder. 

36 Comp. Gen. 94 (1956); B-192592, November 16, 1978. The winning 

bidder must be responsive and responsible. These terms have the 

same meaning as in the procurement arena. Responsive means that 
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the bid must conform to the advertised terms and conditions 

(49 Comp. Gen. 244, 246 (1969)); responsible refers to ability to 

perform (B-160179(1), December 12, 1966).

Subsection (e)(3) sets forth nine exceptions—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 of the exceptions, 40 U.S.C. § 484(e)(3)(D), is where sale by 

competitive bidding “would cause such an impact on an industry or 

industries as adversely to affect the national economy,” provided 

that negotiation will produce the estimated fair market value. 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 

portion of the statute, 40 U.S.C. § 484(e)(5), authorizes GSA to sell 

surplus personal property by negotiation at fixed prices which 

reflect estimated fair market value, without regard to subsections 

(e)(2) or (e)(3).

A provision that has generated some controversy is 40 U.S.C. 

§ 484(d):

“A deed, bill of sale, lease, or other instrument executed by or on behalf of any 

executive agency purporting to transfer title or any other interest in surplus 

property under [the Federal Property Act] shall be conclusive evidence of 

compliance with the provisions of [the Federal Property Act] insofar as concerns 

title or other interest of any bona fide grantee or transferee for value and without 

notice of lack of such compliance.”

This was derived from a very similar provision in the Federal 

Property Act’s predecessor, the War Surplus Property Act of 1944, 

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.d 278, 288 (9th Cir. 1949). See also East

Tennessee Iron and 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 the Federal Property Act and regulations 

and without authority. Pacific Harbor Capital, Inc. v. United States
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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 484(d) 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, December 23, 1963.

One situation in which 40 U.S.C. § 484(d) 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, a right which 

prevails over the purchaser’s claim to title under 40 U.S.C. § 484(d). 

The person surrendering the property is entitled to recover only his 

out-of-pocket expenses. 40 U.S.C. § 655; 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. § 484(j). Early 

amendments to the Federal Property Act 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. 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—

“(A) to any public agency for use in carrying out or promoting for the residents of a 

given political area one or more public purposes, such as conservation, economic 

development, education, parks and recreation, public health, and public safety; or

“(B) to nonprofit educational or public health institutions or organizations . . . for 

purposes of education or public health (including research for any such purpose).” 

40 U.S.C. §§ 484(j)(3)(A), (B). 

GAO has reviewed the donation program on several occasions and 

found that it was generally meeting its goals. The most 

comprehensive report is Transfers of Excess and Surplus Federal
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Personal Property—Impact of Public Law 94-519, GAO/LCD-80-101 

(September 30, 1980).2

Title to property in the custody of the state receiving agency remains 

with the United States. 41 C.F.R. § 101-44.205(a). Upon taking 

possession from the state agency, the donee receives “conditional 

title.” 41 C.F.R. § 101-44.208(c). The donee must return the property 

if it is not used for the donated purpose within one year of donation, 

or if it ceases being used within one year after being placed in use. 

40 U.S.C. § 484(j)(4)(C)(ii); 41 C.F.R. § 101-44.208(a)(2). In addition, 

there are recapture provisions for noncompliance. 41 C.F.R. 

§§ 101-44.208(e) and (f). Absent “conditional title,” if full legal title 

passed to the donee free of federal “strings,” and the donee sold the 

property, the federal government would have no claim to the 

proceeds. 41 Comp. Gen. 20 (1961).

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.

The statute and regulations, in addition to the more general features 

noted above, address many highly specialized situations. For 

example, 40 U.S.C. § 484(i) 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. The procedures of the Merchant Marine Act 

take precedence over those in the Federal Property Act. 42 Comp. 

Gen. 69 (1962). Dredges are apparently not regarded as within the 

scope of subsection 484(i) (B-158429, April 20, 1966), so there is 

separate authority in 40 U.S.C. § 483d to dispose of dredges.

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 

2

The last of GAO’s statutorily mandated biennial reports was Property Management: 

Excess and Surplus Personal Property Transfers to Nonfederal Organizations, 

GAO/GGD-88-68 (May 1988). Under the law as changed in 1988, GAO now reviews 

GSA’s reports. 
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choice: divide the property in half with the federal portion of the 

commission disposing of its half in accordance with the Federal 

Property Act, or sell it with the United States receiving half the 

proceeds. Absent statutory guidance, the choice is up to the 

commission. B-185203, April 8, 1976.

Unless one of several statutory exceptions applies, the proceeds 

from the sale of surplus personal property must be deposited in the 

Treasury as miscellaneous receipts. 40 U.S.C. § 485(a); 41 C.F.R. 

§ 101-45.307; B-200962, May 26, 1981. One exception (40 U.S.C. 

§ 485(b)) is personal property “related” to real property sold by GSA. 

Another (§ 485(c)) is property originally acquired by a revolving or 

reimbursable fund. E.g., B-162337-O.M., October 2, 1967. Another 

(§ 485(d)) permits a portion of the proceeds to be deposited in a 

special account from which to pay refunds that may become 

necessary. When property is repossessed under the Espionage Act 

noted earlier, for example, the refund may be paid from one of these 

accounts. B-163028, January 8, 1968. Still another (§ 485(e)) permits 

proceeds from the sale of “contractor inventory,” including 

government-furnished property, to be applied against the contract 

price when so provided in the contract. E.g., B-140689-O.M., October 

29, 1959; 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 General 

Supply Fund. 40 U.S.C. § 485(i).

Finally, while the Federal Property Act governs the vast majority of 

disposals, other authorities exist in specific contexts. For example:

• 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, January 27, 1976.

• The Comprehensive Crime Control Act of 1984 provides several 

options for the use and disposition of forfeited property, 

summarized in B-225008, February 24, 1987.
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• Excess and surplus government personal property can be donated 

to Indian tribes and tribal organizations under the Indian SelfDetermination 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. 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, 1930.3

 In addition, the early decisions held that 

statutory authority was necessary if doing work for another agency 

would require an increase in the plant or personnel of the 

performing agency. 10 Comp. Gen. 131, 134 (1930); 7 Comp. 

Gen. 709, 710 (1928).4

 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).

3

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. 

4

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 710; 3 Comp. Gen. 974, 976 (1924). 
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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, 

613.5

 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., 2d Sess. 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.

“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.

5

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, March 25, 1930. 
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“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 678.6

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.

. . . .

“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). 

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 

6

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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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.”7

Section 601 of the Economy Act has been amended several times, 

receiving its current structure and designation in the 1982 

recodification of Title 31, and is now found at 31 U.S.C. §§ 1535 and 

1536. 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;

 “(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. 417-418). 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 

7

Excerpts from House Report 1126 are quoted in 52 Comp. Gen. 128, 131-132 (1972), 

and the history of section 601 is discussed in more detail in 57 Comp. Gen. 674 

(1978). 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. 
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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, 

August 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., 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); 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 instance where a proposed transaction was rejected for 

this reason.8

(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 (47 Stat. 

418). (The “get by contract” part was added by amendments starting 

8

This of course does not mean that it has never happened. The issue would involve 

an internal debate and would not likely surface outside of the agency. 
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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 is 

13 Comp. Gen. 138 (1933), in which a government corporation 

issuing its own securities sought Economy Act assistance 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, December 18, 1980. For example, the agreement in 

13 Comp. Gen. 138 was not objectionable merely because the 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, September 8, 1955, that this authority is not unlimited, 

otherwise the statutory condition would be negated. However, 

nothing thus far has purported to define precisely where 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 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 contributed to the cost, the property is 

regarded as “owned” by all of the agencies on a pro rata basis. 

38 Comp. Gen. 36 (1958).

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 
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under the Economy Act, the performing activity must be in 

existence. B-37273, October 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 937-938. 

The Economy Act does not give a performing agency any authority 

which it would not otherwise have. 18 Comp. Gen. 262, 266 (1938).

(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.9

 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).10 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 recodified language is less 

explicit in this regard (compare the original language, 47 Stat.

at 418), use of the Economy Act is improper.

9

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. 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. 

10This decision implies that an agency can enter into an Economy Act agreement 

with a nonappropriated fund activity, and to that extent was modified by 64 Comp. 

Gen. 110 (1984). It remains valid for the points cited in the text. 
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The cost comparison of 31 U.S.C. § 1535(a)(4) is required only 

where the agency is contemplating an Economy Act transaction. It 

does not apply where the agency chooses to perform a function inhouse in lieu of renewing an existing commercial contract. 

Techniarts Engineering v. United States, 51 F.3d 301 (D.C. Cir. 1995).

The Economy Act itself does not require that agencies document the 

two determinations called for by 31 U.S.C. § 1535(a) (interest of the 

government and lower cost). Interagency Agreements: Fiscal Year

1988 Agreements at Selected Agencies Were Proper, 

GAO/AFMD-88-72 (September 1988). However, GAO regards 

documenting the determinations as “sound practice” and a desirable 

internal control. Id. 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, September 26, 1995).

(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. 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).11 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, January 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, April 15, 1937, for example, an agreement had 

been in effect for several prior years and the facts showed an intent 

1164 Comp. Gen. 370 (1985) overruled other aspects of 13 Comp. Gen. 234. 
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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 (1942); B-31862, 

February 27, 1943.

Apart from common sense, another reason for an advance 

agreement is that written 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;

• 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, tit. 7, § 2.4.C.2e. 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.2g; B-234427, August 10, 1989 (non-decision 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 
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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., Financial Audit: First Audit of the

Library of Congress Discloses Significant Problems, 

GAO/AFMD-91-13 at 29 (August 1991). And GAO has always viewed 

the law as applicable to itself. B-156022-O.M., January 6, 1972; 

B-130496-O.M., March 13, 1957; B-13988, January 7, 1941. See also

A-31068, March 25, 1930 (Economy Act’s 1920 predecessor 

applicable to Botanic Garden). The court in United States v.

Mitchell, 425 F. Supp. 917, 918 (D.D.C. 1976), regarded the law as 

applicable to the judicial branch.12

The Economy Act applies to government corporations. 13 Comp. 

Gen. 138 (1933); B-116194, October 5, 1953; B-39199, January 19, 

1944; B-27842, August 13, 1942; A-46332, January 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, August 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. § 181f-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, February 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 

12The Economy Act originally said “executive department or independent 

establishment of the Government” (47 Stat. 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 views of 12 Comp. Gen. 442 and the Mitchell case. 
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called into federal service. B-152420, October 3, 1963, aff’d on

recons., B-152420, February 25, 1964. Nor does it apply to Indian 

tribes (B-44174, September 6, 1944), agencies of the United Nations 

(23 Comp. Gen. 564 (1944)), American Samoa (B-194321, August 7, 

1979), or a presidential inaugural committee (62 Comp. Gen. 323, 

330 (1983)).

There are also a few instances in which entities which 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. Gen. 451, 459 (1979). It also does 

not apply to nonappropriated fund instrumentalities. 64 Comp. 

Gen. 110 (1984).

Finally, it is important to note that the Economy Act authorizes 

intra-agency, as well as inter-agency, 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. 38 Comp. Gen. 734, 738 (1959); B-60609, 

September 26, 1946.13 However, the Economy Act does not apply 

with respect to separate appropriations of a single bureau or office. 

38 Comp. Gen. at 737-738.

 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 

13The 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. 
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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.”

This provision authorizes two types of payment, advance and 

reimbursement. The decision is up to the performing agency.14 

Payment may be in a lump sum or in installments. Pre-audit is not 

required.

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, tit. 7, § 2.4.C.2d (May 

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-234427, August 10, 1989 (nondecision letter); 

B-6124-O.M., October 11, 1939. The statute requires that payment be 

made “promptly.”

Accounting for payments is addressed in 31 U.S.C. § 1536. 

Subsection (a) sets forth general requirements; subsection (b) deals 

with goods provided from stock. Subsection (a) provides:

14As 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 doesn’t have to accept the order. 
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“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 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), supra. (A working fund 

is simply a type of intragovernmental revolving fund.)15 The intent of 

the original Economy Act was that Treasury would establish a 

working fund when requested by the performing agency. H.R. Rep. 

No. 1126, 72d Cong., 1st Sess. 16 (1932). The language of the 1982 

recodification 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. B-260993, June 26, 1996; 31 U.S.C. § 1552(b). 

See also B-211953, n.8, December 7, 1984; B-194711-O.M., 

January 15, 1980.

15Compare the definition of “Working Capital Funds” contained in A Glossary of

Terms Used in the Federal Budget Process: Exposure Draft at 86 

(GAO/AFMD-2.1.1, Rev. January 1993) (here after cited as Budget Glossary

Exposure Draft). 
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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. Program to Improve Federal Records

Management Practices Should Be Funded by Direct Appropriations, 

GAO/LCD-80-68, 12 (June 23, 1980).

Although not expressly provided in the Economy Act, an agency 

may, if it chooses, deposit reimbursements in the Treasury as 

miscellaneous receipts. 56 Comp. Gen. 275, 278-279 (1977) (indirect 

costs); 57 Comp. Gen. 674, 685 (1978) (applying same conclusion to 

direct costs). The latter decision 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), Defense may, at its option, credit Economy Act 

reimbursements to the appropriations which earned them or, if 

those appropriations have expired, to appropriations current at the 

time of collection. Reimbursements to Appropriations: Legislative

Suggestions for Improved Congressional Control, 

GAO/FGMSD-75-52 (November 1, 1976); B-179708-O.M., 

December 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.”16

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, 

September 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”).

The law does not require “concurrent replacement,” that is, 

replacement in the same fiscal year as delivery, but does require, in 

general terms, that “agency accounting systems . . . be able to relate 

credits from the use of stocks on hand in Economy Act transactions 

to replacement needs.” B-179708-O.M., July 10, 1975. In this 

connection, B-179708-O.M. states beginning on page 15:

“The crucial factor with respect to implementation of the statute is the 

determination that replacement is necessary—or, more precisely, not 

unnecessary—rather than the actual replacement transaction. Thus we believe that 

the statutory requirement is satisfied by some mechanism for screening out 

payments for stocks not in need of replacement and insuring that such payments 

are treated as miscellaneous receipts rather than credits. Once this is 

accomplished, we think the timing of replacements, including fiscal year 

differences, is essentially immaterial, except perhaps to the extent that time lapses 

are so great as to be relevant from an audit standpoint in terms of the validity of the 

determination that replacement was necessary. Finally, we perceive no objection to 

the fact that replacement items might not be identical to the materials furnished 

from stocks so long as there is sufficient similarity to justify a bona fide

replacement relationship.”

It follows that if the appropriation which earned the reimbursement 

has expired and the performing agency has made the replacement 

decision but has not implemented it prior to expiration, the payment 

may be credited to the corresponding appropriation current at the 

time of collection, since this is the only way it can be “credited so as 

16Retention of the word “executive” in this subsection in the 1982 recodification was 

inadvertent. 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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to be available to replace the goods.” Receipt of payment too late in 

the fiscal year to permit conducting a procurement for the 

replacement items poses a problem, but there is no authority to put 

the payment in some sort of holding account to be credited to next 

year’s appropriation when it shows up. A-92491, April 5, 1938. If the 

payment then arrives in that fiscal year, it effectively becomes the 

budgetary resource for purposes of the obligation; if it arrives in the 

following year, it is credited to the expired account.

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 to, 

in effect, 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,” i.e., 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-agency and inter-agency 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.

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 anyone’s appropriations. B-250377, 

January 28, 1993. Charging too much augments the appropriations of 

the performing agency. B-45108/B-48124, February 3, 1955; 

B-101911-O.M., April 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. 
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12 Comp. Gen. 442 (1932).17 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. 674, 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 interand 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.”

Thus, the universe of costs may be divided into (1) required costs 

and (2) 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. Quoting from 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 

17Loathe 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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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, December 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, January 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.18

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., 

22 Comp. Gen. 74 (1942). Indirect costs are those “incurred for 

common objectives and therefore cannot be directly charged to any 

single cost objective.”19 Indirect costs which (1) are funded out of 

currently available appropriations, and (2) bear a significant 

18“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. 

19A Glossary of Terms Used in the Federal Budget Process, GAO/PAD-81-27, 87 (3d 

ed. March 1981). The term does not appear in the 1993 draft revision (Budget

Glossary Exposure Draft, supra note 15). 
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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, December 7, 1984. 

Examples of indirect costs include administrative overhead 

applicable to supervision (56 Comp. Gen. 275), and rent paid to the 

General Services Administration attributable to space used in the 

course of performing Economy Act work (B-211953).

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 not 

normally recoverable because it is not funded out of currently 

available appropriations. 57 Comp. Gen. 674; 72 Comp. Gen. 159, 162 

(1993).20 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. 

20Under 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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The amounts so recovered were deposited in the general fund of the 

Treasury as miscellaneous receipts. Id. at 685-86.

Another example of permissible “situational costs” is where the 

performing activity is funded by a statutorily authorized stock, 

industrial, or similar fund which provides for “full cost” recovery, 

i.e., 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, January 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, September 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 a detailed cost audit by 

the ordering agency. 32 Comp. Gen. 479 (1953); 39 Comp. Gen. 548, 

549-50 (1960). Nor does it require the performing agency to provide 

a detailed breakdown unless the agreement provides otherwise. 

B-116194, October 5, 1953. Payment is authorized “at rates 

established by the servicing agency 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, January 21, 1958, “[a]s long as the amount 

agreed upon results from a bona fide attempt to determine the 
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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, January 28, 1993 (containing a detailed 

discussion); Iran Arms Sales: DOD’s Transfer of Arms to the Central

Intelligence Agency, GAO/NSIAD-87-114, 8 (March 1987) .

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., November 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, 

April 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., October 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. The Comptroller 

General addressed the situation as follows in B-61814, January 3, 

1947:

“[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.”
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(3) Obligation and deobligation

The obligational treatment of Economy Act transactions is 

addressed in 31 U.S.C. § 1535(d):

“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.” (Emphasis added.)

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), 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—

“(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. 34 Comp. Gen. 418, 421 (1955); 39 Comp. Gen. 317, 318-

19 (1959). 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, namely, that the order or agreement must be for a purpose 

the ordering agency is authorized to accomplish.
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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 obligational authority to satisfy the 

Antideficiency Act.

While the order must be placed or the agreement entered into before 

the ordering agency’s appropriation expires for obligational 

purposes, actual payment to the performing agency may occur in a 

later fiscal year. If payment does not take place until after the 

obligated account has closed pursuant to 31 U.S.C. § 1552, the 

payment must be charged to a current appropriation of the ordering 

agency available for the same purpose. 31 U.S.C. § 1553(b); 

B-260993, June 26, 1996.

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 deobligate. 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. Subsection (c) of the 

original Economy Act contained similar language (47 Stat. 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 about in stages. First, a 1936 statute restricted the period of 

availability of advance payments under the Economy Act to that 

provided in the source appropriation.21 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, September 6, 1950, ch. 896, § 1210, 

21Act 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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64 Stat. 595, 765. 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) to the extent the performing agency has not performed or 

itself incurred valid obligations as part of its performance (34 Comp. 

Gen. 418, 421-422 (1955)). The 1982 recodification of Title 31, 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.”

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).

A concrete example will illustrate the difference between a 

commercial contract and an Economy Act contract. Suppose that, 

towards the end of fiscal year 1996, 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 1996 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 1996 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 
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1997 appropriations. See B-223833, November 5, 1987; B-134099, 

December 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. E.g., 

55 Comp. Gen. 1497 (1976); 51 Comp. Gen. 766 (1972); B-108332, 

March 26, 1952; B-95760, June 27, 1950.22

(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 programspecific. 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, 490-491 (1938), is as 

follows:

“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 

under the “Funds available” heading, that an Economy Act transfer 

cannot expand that purpose availability.

22See Chapter 7 for further elaboration and case summaries. 
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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).23 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 two months later found the result equally 

applicable to payment by reimbursement. B-106101, November 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 (1938). 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 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, December 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, October 30, 1951, 

concluded that funds advanced or reimbursed in Economy Act 

23The 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 non-Economy Act applications without distinction. 
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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, October 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. Thus, 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 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 passenger-carrying automobiles, or for procurements 

without advertising, etc.” Id. at 752. 

The decision then went on to distinguish the prior cases on the 

following grounds:
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“What is involved in the instant matter is essentially different being the 

accomplishment of certain object 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 advance-of-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, December 22, 1943, 

B-43377, August 14, 1944, and B-76808, July 29, 1948. A similar 

rationale is found in B-259499, August 22, 1995, advising the Central 

Intelligence Agency 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-259499 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.

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, November 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, November 18, 1942.

In 31 Comp. Gen. 190 (1951), an agency whose appropriation 

contained a monetary ceiling on personal services asked whether 
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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, November 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, April 28, 

1966; B-116194, October 5, 1953; B-44293, September 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 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 
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advance or by reimbursement, in an Economy Act transaction.24 

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 in advance of payment language does not 

permit the agency to completely disregard the conditions 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 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!

24To the extent it supports a contrary proposition, the editors view 39 Comp. 

Gen. 548 (1960) as incorrect. It inexplicably fails to consider the no advance 

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., February 10, 1930. 
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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 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, before the GSA certifying officer can certify 

the voucher, (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 

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., April 3, 1981.
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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 can, in 

appropriate circumstances, 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).

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 or 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 in 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. 
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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 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).25

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. 

25Oddly, 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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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, March 29, 1976; B-30084, 

November 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 didn’t 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 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 reimbursable 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. 
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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 n.3.

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 travel expenses incurred in connection 

with the detail work. 15 Comp. Gen. 334 (1935); B-141349, 

December 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 
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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. 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, May 26, 1987 (internal 

memorandum).

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 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 FTS2000 telecommunications project. B-230960, April 11, 1988.

As to reimbursable details, section 202(f) of the Legislative 

Reorganization Act of 1946, 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 
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committees. The Justice Department’s Office of Legal Counsel 

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 didn’t already exist. 12 Op. Off. Legal 

Counsel 184, 185 (1988). See also 1 Op. Off. Legal Counsel 108 

(1977). However, the 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, not a limitation on the loaning agency, and that 

compliance is not the loaning agency’s responsibility. B-129874, 

January 4, 1971.

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 required to be reimbursed. B-129874, 

January 4, 1971; B-130496-O.M., March 13, 1957. In addition, GAO 

has applied the two 21 Comp. Gen. decisions to itself. B-41849, 

May 9, 1944; B-130496-O.M., above. 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 Act “to put the Senate on the 

same basis as the House in this regard.” S. Rep. No. 98-515, 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, as discussed under the Interagency 

Claims heading in Chapter 12, 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 
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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 (id. 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. 1976), 

aff’d sub nom. United States v. Casper, 541 F.2d 1275 (8th Cir. 1976), 

cert. denied, 430 U.S. 970; 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. 
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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. 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.26

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 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 under the Actual 

Cost heading. Reimbursable costs (or costs the borrowing agency 

should pay directly in the first instance) include such things, as and 

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, September 30, 1955. An important expense 

which the borrowing agency should assume under the agreement, 

discussed further in Chapter 12, 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, i.e., 

divorced from some cost actually incurred by one of the agencies, 

the Economy Act should not be used for loans for indefinite periods 

26Subsequent 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 (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. 
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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, August 23, 1961. 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 didn’t enter into one. Once the 

property was lost, “there existed no proper subject of a purchase 

and 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

Questions concerning the provision and funding of common 

services arise most frequently in the case of larger agencies made up 

of component bureaus or offices funded under separate 

appropriations. It often makes sense, economically as well as 

operationally, to provide certain common services, procurement for 

example, centrally. How the agency goes about doing this depends 

primarily on its appropriations structure.

One approach might be to budget specifically for common services 

from a single, centralized appropriation. For example, a Department 

might receive an appropriation which is available for certain 
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specified department-wide services such as personnel, information 

resources management, and “other necessary expenses for 

management support services to offices of the Department.” 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., September 28, 

1981.

A different 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.” 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 actually received. 70 Comp. Gen. 592, 595 

(1991) (executive computer network); B-77791, July 23, 1948 

(procurement of office supplies); B-202979-O.M., September 28, 

1981 (legal services).

The centralization of common services may be equally desirable in 

the case of a single bureau with more than one operating 

appropriation, or a smaller agency which is not divided into 

component entities but which nevertheless receives several 

separate appropriations. While statutory authority is necessary 

because separate appropriations are involved, the Economy Act 

does not apply in this situation. 38 Comp. Gen. 734, 737-738 (1959). 

Following the 1959 decision, the Bureau of the Census, to whom that 

decision had been addressed, sought and received specific authority 

to charge common services to any available appropriation, provided 

the benefiting appropriation(s) reimbursed the financing 
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appropriation no later than the end of the fiscal year. Pub. L. 

No. 87-489, 76 Stat. 104 (1962). Other agencies sought similar 

authority and GAO supported the enactment of governmentwide 

legislation. See B-136318, December 20, 1963. This was done a few 

years later, and the authority is now found at 31 U.S.C. § 1534, 

discussed under the Transfer heading in Chapter 2.

Thus, for intra-bureau services, or intra-agency services for agencies 

not divided into component entities, 31 U.S.C. § 1534 provides the 

necessary authority. For agencies composed of separately funded 

bureaus or offices, 31 U.S.C. § 1534 exists side-by-side with the 

Economy Act, and the agency would appear to have discretion in 

choosing which authority to use, although 31 U.S.C. § 1534 seems 

somewhat broader. The difference may be illustrated by the 

situation in 17 Comp. Gen. 748 (1938). The Bureau of Prisons 

entered into a contract for safety inspections and evaluations of all 

federal prisons. It proposed charging the contract price to the 

appropriation for one penitentiary, subject to proportionate 

reimbursement by the others. This, the decision concluded, could 

not be authorized under the Economy Act. At the time, the only 

option was for the voucher to list all contributing accounts, although 

a single check could of course be issued. Id. at 751. Now, however, 

assuming federal prisons were still receiving individual line-item 

appropriations, which they are not, this type of “convenience 

transaction” could presumably be done under authority of 31 U.S.C. 

§ 1534.

(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., October 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 government, and the fact that these 

tasks and functions are subject to change over time. The legislative 

history gives some idea of what Congress had in mind:
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“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.

“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, 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 is the provision of administrative support services. 

Typically, the Economy Act is used to enable the General Services 

Administration to provide support services to smaller agencies. E.g., 

B-130961, April 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 and enters into such 

an agreement. B-230727, August 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 
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the Federal Property and Administrative Services Act of 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 include 

special services such as utilities and janitor services, but not rent. 

26 Comp. Gen. 677 (1947); B-70978, December 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, April 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, January 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 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, January 28, 1963. 

See also B-14855, February 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, June 7, 1965; B-156510, February 23, 1971. See also

B-183256-O.M., December 22, 1975, and B-133044-O.M., August 11, 

1976 (Economy Act authorizes VA to provide medical services to 

persons eligible for medical assistance from the Defense 

Department). A variation is B-171924, April 7, 1971, holding that an 

Air Force hospital on Clark Air Force Base in the Philippines could 
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provide services to a child struck by a Coast Guard vehicle, to be 

reimbursed by the Coast Guard under the Economy Act.27 A final 

medical case is B-62540, February 12, 1947, holding that the 

Economy Act was the appropriate authority 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, June 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, January 15, 1980 (hearing 

examiners provided to other agencies by the Equal Employment 

Opportunity Commission in discrimination complaints); B-150322, 

December 7, 1962 (poll of employees of a private corporation on a 

labor relations issue conducted by National Labor Relations Board 

for the Federal Mediation and Conciliation Service); B-98216, 

October 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:

27This is another example where the Economy Act was used as authority even 

though there was no written agreement “up front.” 
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• Sale of arms by Defense Department to Central Intelligence Agency 

for use in covert operations. B-225832-O.M., February 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).

• Attendance at conference (non-training) by employees of agencies 

other than sponsoring agency. B-190244, November 28, 1977.

• Purchase by Walter Reed Army Medical Center of motion picture 

supplies and services from Department of Agriculture. B-140652, 

November 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, August 21, 1957.

• Services of National Park Service in planning and supervising 

installation of equipment in Franklin D. Roosevelt Library. 

B-64762, March 31, 1947.

• 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, 90th Cong., 2d Sess., Utilization of Federal

Laboratories (Comm. Print 1968).

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 96, 98 (1985) (preliminary print). 

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 
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help defray the cost of conducting the audit. B-163758-O.M., 

December 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 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).28

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 96 (1985) (preliminary print); 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., January 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 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, if 

28Several additional examples are summarized under the “Other Augmentation 

Principles and Cases” heading in Chapter 6. 
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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 self-sufficient, reimbursement under the 

Economy Act is authorized. B-165117-O.M., December 23, 1975.

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 non-required services. For example, 44 U.S.C. § 1701 

requires the Government Printing Office to provide addressing, 

wrapping, and mailing 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), amplified, 33 Comp. 

Gen. 559 (1954); 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 1965 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.
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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, November 11, 1944:

“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. 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., March 16, 1965. Equally 

unauthorized is the transfer of debt collection responsibilities under 

the Federal Claims Collection Act. 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 
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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 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, November 11, 1944. The Civil 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.” Thus, 

while the Army would be actually making the refunds, 

“responsibility for the performance of the function generally would 

remain” in the Commission. 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.
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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, February 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). This remained the law for 40 years.

The only decisional incursion of any significance during this period 

was 52 Comp. Gen. 128 (1972), advising the Environmental 

Protection Agency 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 acting as grantor under specific 

authority to make grants to other agencies which might in turn use 

contracts as part of their performance. Id. at 134.

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. 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 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 
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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 allowing the requisitioned 

agency to simply contract out the part of the work that it cannot do.” H.R. Rep. 

No. 97–456, 4 (1982), reprinted in 1982 U.S.C.C.A.N. 3182, 3185.

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; 

1982 U.S.C.C.A.N. at 31, 86. 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,29 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, 

August 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

Telecom. Inc. v. Aldridge, 701 F. Supp. 1104, 1113 (D.N.J. 1988), aff’d

29Reorganization 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 Subcomm. of the House Comm. on Government Operations, 97th 

Cong., 1st Sess. 78 (1981) (statement of Milton J. Socolar, Special Assistant to the 

Comptroller General of the United States). 
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mem., 879 F.2d 858 (3d 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 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, November 25, 1992, recons. denied, B-244691.3, 

January 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, November 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

Inter-Agency Contracting to Avoid Competition and Oversight

Requirement, S. Prt. No. 61, 103d Cong., 2d Sess. (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. 
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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.

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, 

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. 

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 (60 Fed. Reg. 49720, 

September 26, 1995).30 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.

2. Other Authorities Although the best known interagency authority is the Economy Act, 

there are many others. Some are mandatory; most are optional. 

Some of the more common, like printing by the Government 

30A very preliminary review of implementation indicated reasonable progress. See

Interagency Contracting: Controls Over Economy Act Orders Being Strengthened, 

GAO/NSIAD-96-10 (October 1995). 
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Printing Office or the various services provided by the General 

Services Administration, are touched upon elsewhere in this work. 

Our purpose here is to present a few of the lesser-known authorities.

The Economy Act will not apply in the face of a more specific 

statute. E.g., 44 Comp. Gen. 683 (1965); 6 Op. Off. Legal Counsel 464 

(1982); Integrated Systems Group, Inc. v. GSA and Department of

the Army, GSBCA No. 13108-P, 95-1 B.C.A. ¶ 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 (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.

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:

“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, 

November 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 is equally free to do so, and 

may credit fees received from other government agencies (but not 
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private participants) to the appropriation which financed the 

training. B-241269, February 28, 1991.

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 discretion, to provide the supplies or services to 

another military entity on a nonreimbursable basis, i.e., free.

Tennessee Valley Authority. The Tennessee Valley Authority 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. Rates charged are calculated to 

produce sufficient revenue to cover the operation, maintenance, and 

administration of the power system, payments to states and 

counties in lieu of taxes, required payments to the United States 

Treasury, and commitments to bondholders. 16 U.S.C. § 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, the General Services 

Administration can, under 40 U.S.C. § 481(a)(3), contract with TVA 

for periods of up to 10 years, and can delegate this authority to other 

agencies. Id.

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. Subsection (c) provides that—
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“(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.” 40 U.S.C. § 1537(b)(2). Under this authority, for example, 

the Bureau of Prisons 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 the National Academy of 

Sciences—

“shall, whenever called upon by any department of the Government, investigate, 

examine, experiment, and report upon any subject of science or art, the actual 

expense of such investigations, examinations, experiments, and reports, to be paid 

from appropriations which may be made for the purpose, but the academy shall 

receive no compensation whatever for any services to the Government of the 

United States.” 36 U.S.C. § 253. 

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, October 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 
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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, August 28, 1941. Cases like these do not stand for the 

proposition that the Academy’s 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, August 1, 1977.

Inspection of Personal Property. Section 201(d) of the Federal 

Property and Administrative Services Act, 40 U.S.C. § 481(d), 

provides that, subject to General Services Administration 

regulations—

“any executive agency may utilize the services, work, materials, and equipment of 

any other executive agency, with the consent of such other executive agency, for 

the inspection of personal property incident to the procurement thereof, and 

notwithstanding section 1301(a) of title 31 or any other provision of law such other 

executive agency may furnish such services, work, materials, and equipment for 

that purpose without reimbursement or transfer of funds.”

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. § 481(d) is 

that it authorizes the providing agency to waive reimbursement.

National Archives and Records Administration. 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:
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“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.”

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 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.

3. Franchise Funds Many agencies, and certainly most if not all of the larger ones, have 

working capital funds for providing common services. Each 

agency’s working capital fund is designed primarily to service that 

agency. An idea that gained ground in the 1990s was to foster 

competition among agencies in the area of providing common 

services, the theory being that this would result in increased 

efficiency at reduced cost.

Section 403 of the Government Management Reform Act of 1994, 

Pub. L. No. 103-356, 108 Stat. 3410, 3413, 31 U.S.C. § 501 note, 

introduced the concept of the “franchise fund” as a pilot program. 

Subsection (a) authorizes the establishment of franchise funds in six 

executive agencies to be selected by the Office of Management and 

Budget in consultation with specified congressional committees. 

Subsection (b) provides:

“Each such fund may provide, consistent with guidelines established by [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.”
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Subsection (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), 108 Stat. 3414. 

Thus, a franchise fund is basically a type of working capital fund, 

which in turn is a type of 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.31

The following franchise funds were established in 1997 

appropriation acts:

• Department of Veterans Affairs, Pub. L. No. 104-204, 110 Stat. 2874, 

2880 (1996).

• Environmental Protection Agency, Pub. L. No. 104-204, 110 Stat. 

at 2912.

• Federal Aviation Administration, Pub. L. No. 104-205, 110 Stat. 2951, 

2957 (1996).

• Department of the Interior, Pub. L. No. 104-208, § 113, 110 Stat. 3009, 

3009-200 (1996).

• Department of the Treasury, Pub. L. No. 104-208, 110 Stat. at 3009-

316.

The provisions are fundamentally similar. Each provision authorizes 

the rates to include depreciation and accrued leave. Each authorizes 

up to four percent of total annual income to be retained as a reserve 

for acquisition of capital equipment and enhancement of support 

systems, with any excess to be transferred to the Treasury. The 

Interior, EPA, and FAA statutes mandate payment in advance; 

31Susan Spurling, So VA Has a Franchise . . . What Does It Mean?, reprinted in

7 JFMIP News 13 (No. 4, 1996). 
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advance payment is permissible but not mandatory in the Treasury 

and VA statutes.

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.

Most Treasury accounts are either receipt accounts or expenditure 

accounts, but not both. 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 deposited in the Treasury to the credit of 

the appropriate general fund receipt account. 31 U.S.C. § 3302(b). 

Absent an appropriation, you do not withdraw money from a 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. 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.32 It should be 

32Congress can, of course, 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 re-use the money, the reimbursement still 

cannot remain available beyond the appropriation to which credited. 
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apparent that a key element of congressional control is the ability to 

control the disposition and use of receipts.

A revolving fund, while classified as an expenditure account, 

combines elements of both receipt and expenditure account types. 

The term “revolving fund” may be defined as “a fund established by 

the Congress to finance a cycle of operations through amounts 

received by the fund.” Revolving Funds: Full Disclosure Needed for

Better Congressional Control, GAO/PAD-77-25, 2 (August 30, 1977). 

See section 2-1520 of the Treasury Financial Manual (defining 

revolving funds). See also 38 Comp. Gen. 185, 186 (1958) (quoting an 

almost identical definition from an obsolete Budget-Treasury 

regulation, the apparent source of the Treasury definition). As this 

definition implies, 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. GAO’s 1977 report explained this as follows:

“In concept, expenditures from the revolving fund generate receipts which, in turn, 

are earmarked for new expenditures, thereby making the Government activity a 

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/PAD-77-25 

at 2. 

By authorizing the agency to retain receipts and deposit them back 

into the fund, a revolving fund provides the authority necessary to 

avoid the miscellaneous receipts requirement of 31 U.S.C. § 3302(b).

Revolving funds in the federal government appear to have developed 

in the latter part of the 19th 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 observed in a 1919 decision:
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“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 (1) functioned as both a receipt 

account and an expenditure account and (2) continued available 

without fiscal 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 

establish 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. 

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.

Proponents of revolving funds cite several advantages. See Senate 

Committee on Government Operations, Financial Management in

the Federal Government, S. Doc. No. 87-11 (1961), at 267-68.

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. Most important from the perspective of 

the spending agency is the increased flexibility under a revolving 

fund since the agency does not have to ask Congress for the money. 

For these reasons, particularly the last, most executive agencies, 
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naturally and understandably, will take all the revolving funds they 

can get.

b. Types There are three broad categories of revolving funds—public 

enterprise, intragovernmental, and trust.33 Since they are all 

revolving funds, they share the common elements of revolving 

funds: they are created by act of Congress (more on this later), they 

operate as combined receipt and expenditure accounts, and they 

authorize use of the receipts without further congressional action.

(1) 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 (1) a business-type operation, (2) which 

generates receipts, (3) which are in turn used to finance a 

continuing cycle of operations. Although not a legal requirement, the 

fund should be self–sustaining or nearly so. GAO/PAD-77-25 at 7, 51.

Most government corporations are financed 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 

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.34

(2) 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 accounts. It is designed to carry 

33Our definitions are culled from several sources: Budget Glossary Exposure Draft, 

supra note 15 at 5-6; GAO/PAD-77-25 at 4-6; Treasury Financial Manual, § 2-1520; 

OMB Circular No. A-34, § 21.1 (1994). 

34In 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. 
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out a cycle of business-type operations with other federal agencies 

or separately funded components of the same agency. Examples of 

funds designed to finance dealings with other agencies are the 

various revolving funds available to the General Services 

Administration—the General Supply Fund and the Federal Buildings 

and Information Technology Funds. Another example is 5 U.S.C. 

§ 1304(e), the revolving fund used by the Office of Personnel 

Management for training, background investigations, and other 

reimbursable functions.

Examples of intra-agency revolving funds are the working capital 

funds available in most larger agencies and several smaller ones to 

finance the centralized provision of common services. A working 

capital fund is—

“[a] revolving fund that operates as an accounting entity [in which] the assets are 

capitalized and all income is in the form of offsetting collections derived from the 

fund[s] operations and available in their entirety to finance the fund[s] continuing 

cycle of operations without fiscal year limitation.”35

A typical example is the Commerce Department’s working capital 

fund, 15 U.S.C. § 1521:

“There is hereby 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 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 further, That a separate schedule of expenditures 

and reimbursements, and a statement of the current assets and liabilities of the 

working capital fund as of the close of the last completed fiscal year, shall be 

included in the annual Budget.”

35Budget Glossary Exposure Draft, supra note 15, at 86. 
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Note the common elements of a working capital fund law, most of 

which are exhibited in 15 U.S.C. § 1521.36 Specifically:

• It may, as the Commerce Department statute does, fix the fund’s 

capital. Many similar statutes do this; some, such as 20 U.S.C. 

§ 3483, do not.

• The funds are available without fiscal year limitation.

• The 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, like the Commerce 

statute, 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).

• It will require payment at least by reimbursement. It may also 

authorize advance payments. An advance payment provision may 

limit the advance’s availability to that of the paying appropriation. 

E.g., 7 U.S.C. § 2235.

• It may require some form of budgetary disclosure.

• Every statute we reviewed includes some direction on determining 

the amount of reimbursement, the inclusion of depreciation being 

the most common.

Another common element, this one not included in 15 U.S.C. § 1521, 

is a provision requiring periodic return of excess amounts to the 

general fund of the Treasury. E.g., 15 U.S.C. § 278b(f).

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). The 

Justice opinion also notes several services which an agency could 

36Other 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, 2216a) is covered separately later. Further discussion 

of the Labor, Justice, and GSA funds may be found in GAO’s report Working Capital

Funds: Three Agency Perspectives, GAO/AIMD-94-121 (May 1994). 
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legitimately place under its working capital fund: stockroom, health 

unit, fiscal, travel, audio-visual, messenger, and laundry services. Id. 

at 386-387 and n.8.

Other types of intragovernmental revolving funds are stock funds, 

industrial funds, and supply funds. Stock funds are used to finance 

inventories of consumable items. Industrial funds are used to 

finance industrial- and commercial-type activities. See Financial

Management in the Federal Government, cited above, at 171. Both 

are found primarily within the Defense establishment. 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 are 38 U.S.C. § 8121, 

establishing a revolving supply fund for the Department of Veterans 

Affairs, and 14 U.S.C. § 650, the Coast Guard Supply Fund.

(3) Trust revolving fund

A trust revolving fund (Treasury accounts 8400-8499) is similar to 

the other types—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 trust 

agreement or statute under which the government has essentially a 

fiduciary relationship with respect to amounts credited to the fund. 

An example is the Federal Deposit Insurance Corporation’s Bank 

Insurance Fund (12 U.S.C. § 1821), into which are deposited the 

FDIC’s assessments collected from member banks. Other examples 

are found in employee benefit programs which involve employee 

contributions. E.g., 5 U.S.C. § 8348 (Civil Service Retirement and 

Disability Fund), 5 U.S.C. § 8714 (Employees’ Life Insurance Fund), 

5 U.S.C. § 8909 (Employees Health Benefits Fund).

c. Congressional Control There are no rules of law that either mandate or prohibit the 

creation of revolving funds in particular contexts. Accordingly, 

whether to create a revolving fund or not is a policy matter for 

Congress to decide. However, GAO has suggested that the normal 

budget and appropriation process is the best means for effective 

congressional control, and that when Congress creates a revolving 

fund it should be aware that it is yielding a portion of this control to 

the executive branch. E.g., B-139412, May 29, 1959; B-137458, 

October 10, 1958. See also Revolving Funds: Full Disclosure Needed
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for Better Congressional Control, GAO/PAD-77-25, 59-60

(August 30, 1977).

GAO has also taken the position that revolving funds should be 

created only upon a clear demonstration of need. Thus:

“[D]epartures from [the normal budget and appropriation process] should be 

permitted only on a clear showing that an activity cannot be successfully operated 

in the public interest within this framework. Any contemplated change in funding 

methods which may diminish this congressional control should be carefully 

considered as to its need. All practical means available within the framework of the 

regular financing structure should be fully explored. In the absence of special 

circumstances, we believe that the revolving fund method should be adopted only if 

its demonstrable merits in terms of more efficient operation of the activity clearly 

outweigh the disadvantages of reduced congressional control.” B-137458, 

August 31, 1959.

There is even less justification for a revolving fund where the fund is 

not intended to be self-sustaining. B-142952, June 13, 1960.

The reduced visibility of a revolving fund activity “leaves the door 

open for management to embark on programs which may not have 

been contemplated and for which funds may not have been granted 

if requested.” B-137458, October 10, 1958. Once established, the 

program can effectively develop a life of its own and continue to 

exist beyond the point where Congress might have chosen to abolish 

it had it been more visible. B-150004, June 17, 1966.

One device GAO has frequently recommended is the inclusion of a 

provision making funds available only to the extent provided 

annually in appropriation acts. E.g., B-143181, March 27, 1967; 

B-141651, June 13, 1960; B-140602, September 14, 1959. This, of 

course, deprives the fund of one of the key features of its “revolving” 

status.37 An alternative approach in appropriate circumstances, 

which would allow flexibility while retaining congressional control 

over normal operations, might be the enactment of a permanently 

available, separate emergency fund to be replenished by annual 

37A provision in the 1996 Legislative Branch Appropriations Act subjected several 

House of Representatives revolving funds to such a requirement. The House 

Appropriations Committee described the action as “abolishing” the funds. H.R. Rep. 

No. 104-141, at 17 (1995). This is arguably a bit too strong. See B-272197, 

June 27, 1996. 
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appropriations as and to the extent disbursed. National Flood

Insurance Program—Major Changes Needed If It Is To Operate

Without a Federal Subsidy, GAO/RCED-83-53, 36 (January 3, 1983); 

B-120047, September 10, 1959. GAO has also recommended that 

monetary ceilings be imposed on revolving supply funds. B-128197, 

June 26, 1956.

Despite the impression some of these documents might create, 

GAO’s attitude towards revolving funds is not one of unyielding 

hostility. More recent reports recognize that public enterprise 

revolving funds may be appropriate when three criteria are met: 

(1) a continuing cycle of operations generates receipts, mostly from 

nonfederal sources; (2) the fund will be substantially self-sustaining 

over a period of several years; and (3) there is a substantial and 

continuing need for flexibility to meet unforeseen requirements. 

Proposed National Technical Information Service Revolving Fund, 

GAO/RCED-83-218, 5, 9 (August 25, 1983); GAO/RCED-83-53, at 36. 

In the case of the United States Mint’s numismatic programs, GAO 

has gone so far as to recommend the establishment of a public 

enterprise revolving fund. Financial Management: The U.S. Mint’s

Accounting and Control Problems Need Management Attention, 

GAO/AFMD-89-88 (July 1989).

Even when looking favorably on a revolving fund proposal, GAO’s 

reports and comments always recommend the retention of 

congressional controls. These include such things as periodic 

reauthorization; annual submission of business-type financial 

statements and budgets to Congress; limiting activities to those 

which have been reported to Congress in advance; and the return to 

the Treasury of net income, after prior-year adjustments, in excess 

of the amount needed to meet approved activities. GAO/RCED-83-

218, at 6, 11. And, in its report on the Mint’s numismatic programs, 

GAO recommended that the operations to be financed through the 

proposed revolving fund “be reviewed and approved through the 

annual appropriations process.” GAO/AFMD-89-88, at 49.

To sum up GAO’s position, revolving funds automatically and 

unavoidably diminish the congressional spending power. 

Nevertheless, where the advantages of revolving funds can be 

clearly demonstrated, GAO has not viewed them unfavorably, 
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particularly where safeguards are available to assure congressional 

oversight.

2. 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, January 20, 1936; A-65286, October 1, 1935; GAO/PAD-77-

25, at 46. The reason is that 31 U.S.C. § 3302(b), the so-called 

“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 even within a single fiscal 

year, let alone without fiscal year limitation.

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 may, of 

course, be contained in an appropriation act. 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, tit. II, 106 Stat. 1828, 1853. See

also B-127121, April 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” help. 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); B-209680, February 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. GAO/PAD-77-25, at 6; B-135037-O.M., June 19, 1958.

In order to create a revolving fund, a statute must, at a minimum, do 

the following:
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• 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, i.e., the purpose or 

purposes for which the funds may be expended.

• It must authorize the agency to use those receipts for those 

purposes without fiscal year limitation.

A statute illustrating this 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 it—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 it “shall be available 

without fiscal year limitation.” Statutes creating revolving funds 

often specify additional features that exceed the “minimum” 

requirements we have identified. This one, for example, provides the 

initial working capital and its treatment of receipts as “offsetting 

collections” insures—although it would have happened even 

without the language—that the fund will be presented in the budget 

totals on a net basis. In addition, 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, and the 
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Treasury Department’s Federal Account Symbols and Titles in fact 

classifies it as a public enterprise revolving fund.

Examples of statutes requiring the return of excess amounts to the 

Treasury are cited later under the Augmentation and Impairment 

heading. 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 fund financing by 

grantees or 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 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., October 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.38

38See Revolving Funds: Office of the Attending Physician Revolving Fund Can Be

Terminated, GAO/AFMD-89-29, 2-3 (December 1988). 
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3. 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 receives 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 lump-sum 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”). 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 one year, 

to “borrow such funds from the General Fund as may be necessary 

to meet 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., 
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B-124995, September 27, 1955; B-112395, October 20, 1952; B-105693, 

October 22, 1951.39 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 specified sources,” whether or not 

generated by the fund’s operations. 23 Comp. Gen. 986, 988 (1944).

Either way, the authority to retain receipts is an exception to 

31 U.S.C. § 3302(b). E.g., 19 Comp. Gen. 791 (1940), amplified, 

20 Comp. Gen. 280 (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. From the revolving fund perspective, it is 

more accurate to restate this a bit and to say that the statute requires 

that receipts be deposited in the Treasury either to the credit of an 

appropriation or fund where specifically authorized, or, where not 

so authorized, to the general fund as miscellaneous receipts. Thus, a 

revolving fund is an exception to the miscellaneous receipts 

requirement of 31 U.S.C. § 3302(b), but does not render the entire 

statute inapplicable. The portion of the statute requiring that 

receipts be deposited in the Treasury promptly and without 

deduction applies fully to revolving fund deposits. B-72105, 

November 7, 1963.

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) (OPM investigation/training fund); 44 U.S.C. § 309(b) 

(GPO revolving fund). Unlike an activity funded by direct 

appropriations, a revolving fund would, even without this explicit 

39These three cases involve the Vessels Operations Revolving Fund, 46 U.S.C. App.

§ 1241a. While the scope of the fund was later expanded (46 U.S.C. App. §§ 1241b 

and 1241c) so that the specific result in at least two of the three cases would now be 

different, the relationship of receipts to fund operations remains. 
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authority, be able to retain payments for loss or damage to fund 

property. 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 will also commonly address method of 

payment. At a minimum, payment by reimbursement is usually 

authorized. The statute also 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 reimbursement 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.40 

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. § 327(d) (Transportation).

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 actual or 

estimated 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 

40The statute in that case, the Office of Personnel Management revolving fund, was 

subsequently amended to specifically include advances. 
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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, December 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 which had violated its own regulations, even if 

it did not fully understand that the Corps would be using its 

revolving fund. A more recent 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 non-use. 

B-257064, April 3, 1995. Precisely how to account for these costs 

(allotments, rate adjustments, etc.) is within the Corps’s 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., 

September 12, 1986. See also 72 Comp. Gen. 159 (1993) (similar 

interpretation of term “reimbursable basis”). GAO also encourages 

the administering agency to establish a clear definition of general 

terms like these. See OPM’s Revolving Fund Policy Should Be

Clarified and Management Controls Strengthened, GAO/GGD-84-23 

(October 13, 1983).

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, it may recover these costs from 
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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 may assess termination charges, 

payable to its 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.

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-sufficiency, or if there has been a significant impairment of 

capital, or if Congress wishes to increase the fund’s capital, it can 

provide 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’t 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. § 931.41

4. Expenditures/Availability

a. Status as Appropriation There are perhaps two “foundation rules” of 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 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, 

February 24, 1983. Second, unless specifically exempted, funds in a 

revolving fund are subject to the various limitations and restrictions 

applicable to appropriated funds.

41For a detailed analysis of borrowing authority, see Spending Authority Recordings

in Certain Revolving Funds Impair Congressional Budget Control, GAO/PAD-80-29 

(July 2, 1980). 
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The rationale for the rule that revolving funds are appropriated 

funds follows from the Miscellaneous Receipts Act, 31 U.S.C. 

§ 3302(b), and the Appropriations Clause. U.S. Const., art. I, § 9, 

cl. 7.

In addition, 31 U.S.C. §§ 701(2) and 1101(2) define “appropriations” 

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., 

63 Comp. Gen. 31 (1983), aff’d on recons., 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., March 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.
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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).42 See also Pulsar Data Systems, Inc. v. General

Services Administration, GSBCA No. 13223, 96-2 B.C.A. ¶ 28,407 

(1996), a case 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 court stated that the revolving fund 

legislation “eliminated the need for a new appropriation each fiscal 

year by creating what was, in effect, an on-going appropriation.” 

United Biscuit Co. v. Wirtz, 359 F.2d 206, 212 (D.C. Cir. 1965). 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.

42A management fund may or may not be a revolving fund. See, e.g., 10 U.S.C.

§ 2209. 
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You look first and foremost to the statute creating the fund—in 

effect, 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, 

circumscribe the fund’s availability. Thus, for example, revolving 

funds for the Senate recording and photographic studios may not, 

without further statutory authority, 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. § 293), may not be used to finance the agency’s central 

library or travel office. B-208697, September 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 a direct appropriation. 

E.g., 63 Comp. Gen. 110, 112 (1983); B-230304, March 18, 1988; 

B-216943, March 21, 1985. This means that a revolving fund is 

available for expenditures which are directly related to, and which 

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 the 

Bureau of Engraving and Printing Fund, 31 U.S.C. § 5142. The Fund 

is available “to operate the Bureau of Engraving and Printing” 

(31 U.S.C. § 5142(a)(1)) or, in the original language, “for financing all 

costs and expenses of operating and maintaining the Bureau” 

(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, 
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electrical, plumbing and heating equipment, partitions, flooring, 

etc.), as these are clearly necessary costs of operating and 

maintaining the Bureau. B-104492, October 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, February 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. 

However, GAO concluded in 43 Comp. Gen. 564 (1964) that the 

revolving fund was not available to compile and publish a 100-year 

history of the Bureau. The publication’s relationship to the 

operations of what was essentially a manufacturing establishment 

were rather tenuous and the Bureau lacked authority to disseminate 

information.

Another illustration is the Rural Housing Insurance Fund, 42 U.S.C. 

§ 1487, which, under subsection (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, December 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, 

March 2, 1988 (internal memorandum).

A somewhat more specific purpose statement was contained in the 

now-defunct Farm Labor Supply Revolving Fund. The Agricultural 

Act of 1949 authorized the Department of Labor to incur, on a 

reimbursable basis, certain expenses incident to the transportation 

and subsistence of farm workers. The revolving fund was available 

“for payment of transportation, subsistence, and all other expenses” 

which were reimbursable under the Agricultural Act (65 Stat. 741). 

One decision concluded that the fund was available for the cost of 

physical examinations 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 
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workers and not the taxpayers. 33 Comp. Gen. 425 (1954). However, 

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, March 30, 1959.

An example of an expenditure which is otherwise provided for is 

B-230304, March 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 were found to supply the necessary authority.

In analyzing the purpose availability of a revolving fund, as with a 

direct 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 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 development, except pursuant to a bona fide
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determination to acquire a given security. B-170971, 

January 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 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 (DOD)); B-152624, 

February 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);43 B-161976, August 10, 1967.

• Like direct appropriations, revolving funds are not available for 

entertainment without statutory authority. B-170938, October 30, 

1972.

• Revolving fund may be used to subsidize employee cafeteria if 

properly justified under the “necessary expense” rule. B-216943, 

March 21, 1985.

43Technically, 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).

An intragovernmental revolving fund presents a further 

complication. Its uses are, of course, governed by the statute which 

created it. See, e.g., 40 Comp. Gen. 356, 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, i.e., 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] 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, November 15, 1951. 

Statements like this must be read with caution. They do not mean 

that purpose restrictions on the source appropriation follow the 

money into the grave. If, for example, the Office of Personnel 

Management conducts a background investigation from its revolving 

fund and is reimbursed from the client agency’s Salaries and 

Expenses appropriation, the fact that the client agency’s 

appropriation may be subject to a restriction on, say, some form of 

lobbying has no relevance once the money is in OPM’s account. 

What the rule does mean is that revolving fund financing 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, August 10, 1967. For related material, see the 

“Applicability of limitations and restrictions” heading in the 

Economy Act section of this chapter.

c. Time If purpose availability illustrates a revolving fund’s strongest 

resemblance to a direct appropriation, time availability highlights 

perhaps the clearest divergence. As pointed out earlier in this 

discussion, one of the key features of a revolving fund is that it is 

available without further congressional action and without fiscal 

year limitation. This continuing availability has long been 

recognized as an inherent characteristic of a revolving fund, at least 

as that term is used in statutes enacted by the United States 
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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. 295 (1919).

Thus, the various rules discussed in Chapter 5 governing the 

obligation and expenditure of fixed-year appropriations with respect 

to time do not apply to revolving funds. For purposes of comparison, 

the time availability of a revolving fund, 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 noyear 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 

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, November 28, 1980.

A question which appears to have drawn little attention is whether 

31 U.S.C. § 1555 applies to revolving funds. That statute requires that 

a no-year account be closed 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 a 1979 memorandum, GAO’s General Counsel took 

the position that the statute would apply to uranium enrichment 

revenues which the Department of Energy was authorized under 

42 U.S.C. § 5821(h) to retain and use for program expenses without 

fiscal year limitation. B-159687-O.M., October 25, 1979. The only 

difference between this and a true revolving fund was that the 

authority to retain and use the revenues was not permanent but had 

to be implemented in annual appropriation acts. 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, both Treasury and GAO regarded 31 U.S.C. 

§ 1555 as applicable to the revolving fund without question.

The apparent purpose of 31 U.S.C. § 1555 is to encourage the closing 

of inactive accounts (39 Comp. Gen. 244, 245 (1959)), and there is no 
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reason this should not apply to a revolving fund whose inactivity 

legitimately suggests that it is no longer needed. If for whatever 

reason the period of inactivity does not indicate that the account 

should be closed, the agency administering the fund has the power 

to ward off closure by simply declining to make the “purposes 

served” determination.

With the limitations of a fixed-year appropriation out of the picture, 

there is little left to the bona fide needs rule as applied to a revolving 

fund, except perhaps a simple affirmation that the fund should be 

used only for valid purposes. E.g., 57 Comp. Gen. 865, 868-869 

(1978). Of course, use of a revolving fund to liquidate obligations 

incurred prior to its creation would be improper unless expressly 

authorized. In this connection, it is not uncommon for legislation to 

authorize a newly created revolving fund to assume both the assets 

and the liabilities of specified existing accounts. An example is the 

Corps of Engineers Civil Revolving Fund, 33 U.S.C. § 576.

A common manifestation of the absence of bona fide need concerns 

is the use of revolving funds for multi-year contracts. As long as 

considerations of purpose and amount are satisfied, a number of 

decisions have sanctioned the use of multi-year contracts under 

revolving funds. E.g., 57 Comp. Gen. at 869 (lease of computer 

equipment); 48 Comp. Gen. 497, 502 (1969); 45 Comp. Gen. 59, 66 

(1965) (purchase of supplies under stock fund).

As with the purpose arena, the intragovernmental revolving fund 

introduces an additional complication because it implicates the 

appropriations of the customer agency. When entering into a 

transaction with a revolving fund, the customer agency must apply 

the various time rules to its own appropriation. Thus, the freedom 

from time limitations most evident in the case of a public enterprise 

revolving fund is, in an intragovernmental fund, necessarily 

circumscribed by the nature and status of the supporting (customer) 

appropriations. Specifically, the customer agency must obligate its 

appropriation within its specified period of availability and for a 

bona fide need attributable to that period. With respect to 

performance, the revolving fund is in the same position as any other 

contractor unless the transaction is governed by a deobligation 

requirement like that found in the Economy Act. 31 Comp. Gen. 83 

(1951).
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To restate the thrust of the preceding paragraph, use of a revolving 

fund does not change the period of availability of the customer 

agency’s appropriation. It is improper, for example, for a customer 

funded by fiscal-year appropriations to place orders with an 

industrial fund in excess of legitimate needs, thereby using the 

revolving fund to extend the life of the appropriation. Improper Use

of Industrial Funds by Defense Extended the Life of Appropriations

Which Otherwise Would Have Expired, GAO/AFMD-84-34 (June 5, 

1984). It is equally improper to amend a properly placed order so as 

to increase the scope of the work in the subsequent fiscal year and 

to charge the amendment to expired funds of the prior year. Id. at 9. 

In 55 Comp. Gen. 1012, 1017 (1976), GAO approved a proposal by the 

General Services Administration to lease computer equipment on a 

multi-year basis, the lease to be assigned to a user agency which 

would agree to reimburse GSA’s revolving fund, as long as the user 

agency was not obligating fiscal-year money to reimburse GSA. 

Similarly, advancing money to a revolving fund does not transform a 

fixed-year appropriation into no-year money. 23 Comp. Gen. 668 

(1944).

d. Amount As with direct 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 the 

statute, since repealed, limiting obligations or expenditures for 

improvements to real property to 25 percent of the first year’s rent. 

The only real issue was whether the revolving fund constituted an 

appropriation; if it did—and, of course, it did—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 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 it could 

grant relief in excess of $35 million, noting quite logically that 

forgiving an obligation does not require an appropriation. “You may 

not have needed one,” the decision concluded, “but you got one and 
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it can’t be ignored.” 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, December 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, 

September 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, April 21, 1993 

(Antideficiency Act applies “to any fund administered by a federal 

employee”).

The law is violated by creating an obligation in excess of available 

budgetary resources. 60 Comp. Gen. 520, 522 (1981). For a revolving 

fund, available budgetary resources include (a) orders from other 

government accounts that represent valid obligations of the 

ordering account, and (b) orders from the public, but only to the 

extent accompanied by an advance. OMB Circular No. A-34, § 11.2 

(1995). However, the concept does not include inventory. 60 Comp. 

Gen. 520. Nor does it include anticipated receipts from transactions 

that have not yet occurred. The Air Force Has Incurred Numerous

Overobligations in Its Industrial Fund, GAO/AFMD-81-53 (August 14, 

1981); B-195316-O.M., January 30, 1980; OMB Circular No. A-34, 

§ 21.4. 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 
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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, 

September 6, 1967. If an overobligation or overexpenditure would 

have been authorized under some other appropriation or fund 

available at the time of the overobligation or overexpenditure, 

reimbursement from the proper source—assuming it is still 

available—cures the violation. B-208697, September 28, 1983.

As discussed in Chapter 6, a violation can also occur if an agency 

charges an obligation or expenditure to an appropriation which 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 multi-year 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 

contracts, there was no Antideficiency Act violation. The Board 

further noted that, even if the 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 B.C.A. ¶ 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).
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Another part of the Antideficiency Act requires the apportionment 

of appropriations (defined to include “funds”) by the Office of 

Management and Budget. 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.” 31 U.S.C. § 1512(a). 

Overobligating or overspending an apportionment is just as illegal as 

overobligating or overspending the appropriation itself. 31 U.S.C. 

§ 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-34. OMB’s illustration of the 

Standard Form 132 Apportionment Schedule (Exhibit 35G) 

expressly specifies both public enterprise and intragovernmental 

revolving funds, while section 30.2 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. Id. § 22.4. 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 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 loans. Of course, the agency was also within its 

discretion to comply with the committee preference and not make 

any direct loans. B-209680, February 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 a direct appropriation, record an obligation. 72 Comp.
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Gen. 59 (1992) (entering into contract to procure equipment). See

also 60 Comp. Gen. 700, 703 (1981); 51 Comp. Gen. 631 (1972).44

Under a multi-year contract, the amount to be recorded as an 

obligation depends on the nature and extent of the government’s 

commitment. If the 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, April 23, 

1976 (internal memorandum). If the contract consists of a basic 

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. 62 Comp. Gen. 143 (1983); 48 Comp. Gen. 497, 502 

(1969).

Congress can, of course, vary the above treatment by statute. 

Statutory exceptions have tended to involve multi-year 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, March 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 funds when and if necessary.45 This 

provision amounted to an exception to the requirement to obligate 

for termination liability. 51 Comp. Gen. 598 (1972).

Under an intragovernmental revolving fund, it is also necessary to 

consider the obligational treatment of the supporting 

44Both 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, et seq., in neither case was the 

applicability of the recording statute called into question. 

45The fiscal year 1997 version of this provision is section 8006 of the Department of 

Defense Appropriations Act, which is found in the Omnibus Consolidated 

Appropriations Act, 1997, Pub. L. No. 104-208, § 101(b), 110 Stat. 3009, 3009-88 

(1996). 
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appropriations. That treatment generally is determined by applying 

the appropriate recording standard of 31 U.S.C. § 1501—either 

subsection (a)(1) (binding agreement in writing) or subsection 

(a)(3) (order required by law to be placed with another agency). For 

example, when an agency places an order with the General Services 

Administration 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. The obligation occurs 

as and when GSA performs or enters into a contract for 

performance. 34 Comp. Gen. 705 (1955). See also 23 Comp. Gen. 88, 

90 (1943) (similar principle prior to enactment of 31 U.S.C. § 1501).

An application of 34 Comp. Gen. 705 occurred just a few weeks after 

the decision was issued. The Social Security Administration placed a 

job order with GSA for alterations to a building late in fiscal year 

1954, but GSA was not able to do the work until the following fiscal 

year. Since the Social Security Administration was required by law 

to have the work done by GSA, the obligation of SSA funds occurred 

when SSA placed the job order and was chargeable to that year. The 

obligation was governed by subsection (a)(3) rather than (a)(1), and 

there was therefore no need for SSA to deobligate the funds at the 

end of fiscal year 1954. None of this was affected by the fact that 

GSA was financing the work under a revolving fund. 35 Comp. 

Gen. 3 (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 rules. For common-use stock items 

which are on hand or on order and expected to be delivered 

promptly, placing the order obligates the customer agency’s 

appropriation. 34 Comp. Gen. 705, 707 (1955); 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 Criteria for Recording Obligations for

Defense Stock Fund Purchases Should Be Changed, 

GAO/AFMD-83-54 (August 19, 1983); B-208863, April 11, 1983 
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(internal memorandum). 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 707-708; 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, at 5.

It is also possible to program an industrial fund to automatically 

accept certain orders resulting in a recordable obligation even 

where subsection (a)(3) of 31 U.S.C. § 1501 (requiring documentary 

evidence of an order required to be placed with the performing 

agency) does not apply. B-208863, May 23, 1983 (internal 

memorandum). Modern electronic technologies can satisfy the 

requirement of 31 U.S.C. § 1501(a)(1)(A) that the agreement be “in 

writing.” Id.

If a revolving fund finds that it has undercharged the supporting 

(customer) appropriations, and those appropriations have expired 

for obligational purposes, the restoration authority of 31 U.S.C. 

§ 1553(a) may be used to reimburse the revolving fund. Use of this 

authority merits close scrutiny, however, because it has the effect of 

reviving expired budget authority and giving it no-year status. For 

this reason, 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, 

October 17, 1989; Financial Management: Defense Accounting

Adjustments for Stock Fund Obligations Are Illegal, 

GAO/AFMD-87-1 (March 1987).46 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).

Any statement of obligations an agency furnishes either to the Office 

of Management and Budget in connection with an appropriation 

46The 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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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). 31 U.S.C. §§ 1108(c), 1501(b). GAO has recognized that, at 

least prior to the Federal Credit Reform Act of 1990, applying this 

requirement to guaranteed and insured loans financed by revolving 

funds sometimes results in a “square peg in a round hole” situation, 

and has suggested that reporting can depart from an exact 

obligation basis if acceptable to OMB. However, in the case of direct 

outlays such as direct loans or administrative expenses payable 

from the revolving fund, similar departure is not justified. 51 Comp. 

Gen. 631, 634 (1972).

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., August 15, 1968. 

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 
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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 re–use 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 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.” 12 U.S.C. § 1141f(b). Another 

example is interest on rural electrification loans. 7 U.S.C. 

§ 931(a)(3). Of course, general language which is sufficiently 

inclusive will also do the job, e.g., 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, October 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:
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• Increasing a revolving fund’s working capital by transferring funds 

to it from other revolving funds (or non-revolving appropriation 

accounts, for that matter) either without statutory authority or in 

excess of applicable statutory authority. See Operations of General

Services Administration’s General Supply Fund, GAO/LCD-76-421 

(March 19, 1976).

• Retention of funded reserve for accrued annual leave after the 

employees have transferred to another agency. B-149858-O.M., 

August 15, 1968.

• Retention of jury service fees remitted by an employee paid from a 

revolving fund. B-113214-O.M., January 16, 1953.

Our discussion thus far has emphasized the need to follow the 

precise statutory language. In addition, there are, as discussed in 

Chapter 6, certain nonstatutory exceptions to the miscellaneous 

receipts requirement, and these apply to revolving funds just as to 

direct 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.

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.47

47One 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. 
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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.” 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 “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 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, September 11, 1991 (additional 

“supervision and administration” 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, at least over the long 

term. One thing this means is that the fund should not augment its 

working capital by retaining excess profits. 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:

(1) General Services Administration’s General Supply Fund, 

40 U.S.C. § 756(e)(1):

“As of September 30 of each year, there shall be covered into the United States 

Treasury as miscellaneous receipts any surplus in the General Supply Fund, all 

assets, liabilities, and prior losses considered, above the amounts transferred or 

appropriated to establish and maintain said fund.”
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(2) Bureau of Engraving and Printing Fund, 31 U.S.C. § 5142(d):

“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.”

(3) Office of Personnel Management 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 General Supply Fund provision is the most restrictive, at least 

on its face.48 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., September 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. OPM’s Revolving Fund Policy Should Be

Clarified and Management Controls Strengthened, 

GAO/GGD-84-23, 9 (October 13, 1983).

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., January 3, 1975.

48A separate provision, 40 U.S.C. § 756a, authorizes GSA to retain surplus to the 

extent necessary to maintain a sufficient level of inventory. 
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The provisions quoted above for the General Supply Fund and 

Bureau of Engraving and Printing Fund expressly authorize 

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 direct 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.) Two of the statutes GAO 

reviewed in the course of reaching its conclusion were the Bureau of 

Engraving and Printing and the General Supply Fund provisions, 

linguistic variations of the anti-impairment concept.

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 

amendment 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., September 12, 1986.
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6. Property Management 

and Utilization

A few revolving funds consist only of money. These amount to little 

more than devices to permit the retention and use of user fees 

without congressional involvement. Most revolving funds, however, 

include various types of property and equipment used in their 

operations. To be sure, it would be possible to structure even this 

type of revolving fund to include only money, with the property 

handled under the operating appropriations of the administering 

agency. While this approach might boast the advantage of simplicity, 

it would significantly understate the costs of the program the fund 

was intended to finance, and, at least to the extent a more 

businesslike operation was envisioned, would defeat one of the 

purposes of having a revolving fund. Therefore, consistent with the 

theory of a revolving fund, items of property and equipment are 

typically treated as assets of the fund itself.49 This in turn raises 

issues which implicate augmentation and impairment concerns.

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), the impairment case discussed 

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., December 9, 1971. Since the agency could 

not base depreciation on replacement cost, its next thought was to 

49There are also situations in which property acquired by some other operating 

appropriation should nevertheless be recorded as an asset on a revolving fund’s 

financial statements, with an appropriate explanatory footnote. For a discussion of 

the criteria an item must meet in order to qualify as a reportable asset, see 

GAO/AIMD-94-107R (B-256562, May 3, 1994). 
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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. It was 

in this context that the decision defined “impairment.”

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, 

April 23, 1976 (internal memorandum).

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. § 5142(c)(3), which permits it 

to adjust its prices “to permit buying capital equipment and to 

provide future working capital.” Under this amendment, the Bureau 

can now levy a surcharge, or it can simply raise its prices. 

B-114801-O.M., November 19, 1979. Similarly, at one time, the 

General Services Administration could not charge using agencies 

the replacement cost of motor pool vehicles as it would have 

amounted to an unauthorized augmentation of the General Supply 

Fund. B-158712-O.M., October 4, 1976. Legislation was enacted in 

1978 (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., March 1, 1951. In addition, 

the exchange/sale authority of 40 U.S.C. § 481(c) is available to a 

revolving fund. See B-149858-O.M., February 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.” 
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B-121695, February 3, 1955. Of course, transfers authorized by law to 

be made without reimbursement are an exception. Id.; 

B-149858-O.M., February 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 the implementing regulations 

of the General Services Administration. 56 Comp. Gen. 754 (1977); 

B-121695, February 3, 1955.

One section of the Federal Property Act, 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, November 4, 1953. Another section 

of the Federal Property Act, 40 U.S.C. § 483(a)(1), states that 

reimbursement of the fair value of transferred excess property is 

required “whenever net proceeds are requested pursuant to section 

485(c).” 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, 

April 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., 

October 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 fund, including . . . the proceeds of disposal of 

scrap, 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. 

§ 483(a) and the statement now codified in 41 C.F.R. § 101-36.285 
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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, August 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 

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., December 9, 

1971.

An unusual provision of law is found in 22 U.S.C. § 2358(a), which 

authorizes the Agency for International Development 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., January 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. § 474. Therefore, when a revolving fund of the Senate or 

House of Representatives has excess property, it may either request 
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GSA’s assistance or dispose of the property through the official or 

body with operational control of the particular fund. B-205013, 

January 27, 1982 (Senate); B-114842, October 17, 1979 (House).

In Chapter 12, we discuss the principle that, at least in situations 

governed by direct appropriations, a federal agency is not liable for 

damage it causes to the personal property of another agency unless 

it has consented to such liability in an agreement under the 

Economy Act or comparable authority. Where the property is 

“owned” by a revolving fund, the rules are different. 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. 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. 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 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.

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). The regulations of the 

General Services Administration 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 (it is probably more politically correct to use the less greasy 

term “fleet management vehicles”) are financed under GSA’s General 

Supply Fund. Reviewing an earlier (but not substantially different in 

principle) version of the regulations, GAO agreed that GSA was well 
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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.

The two cases discussed above involve damage caused by a using 

agency. A related issue is loss or damage caused by some nonuser 

such as a carrier. 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 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) (OPM 

revolving fund); 38 U.S.C. § 8121(a)(3) (VA Supply Fund); 40 U.S.C. 

§ 756(c) (General Supply Fund); 44 U.S.C. § 309(b)(2) (GPO 

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.

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), reprinted in

1949 U.S.C.C.A.N. 1771, 1788.
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Subsection (a) of 10 U.S.C. § 2208 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 pricing. 

S. Rep. No. 81-366 at 19, 1949 U.S.C.C.A.N. at 1791. 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 

commercial-type 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 or budget program . . . . The 

invoice charges would include items of cost for labor, material, and current 

operating expense.” Id. at 20-21, 1949 U.S.C.C.A.N. at 1793.

Subsection (b), 10 U.S.C. § 2208(b), directs the Secretary of the 

Treasury to establish the appropriate accounts on Treasury’s books 

upon request of the Secretary of Defense. Subsection (c) “provides 

legal authority for the operation of the funds” (S. Rep. No. 81-366 

at 17, reprinted in 1949 U.S.C.C.A.N. at 1789) by authorizing the 

funds to be charged with the cost of supplies and services, including 

administrative expenses, and to be reimbursed from available 

appropriations.

Subsection (d) authorizes the capitalization of existing inventories 

and the appropriation of necessary amounts. Subsection (e) 

authorizes internal reorganization of military departments in order 
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to take maximum advantage of the revolving funds. Subsection (f), 

described as a congressional control provision (S. Rep. No. 81-366

at 18, reprinted in 1949 U.S.C.C.A.N. at 1790), 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.”

Under subsection (g), supplies returned to inventory are charged to 

the applicable revolving fund and the proceeds credited to “current 

applicable 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., 

February 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, 1949 U.S.C.C.A.N. at 1790. Subsection (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 

& 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 appropriation 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 ont, 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 
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took place in late 1991 with the introduction of the “DBOF”—the 

Defense Business Operations Fund. 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 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, 105 Stat. 1150, 1204 (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 six months 

after the DBOF was established, a GAO official 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.”50 The Fund experienced a number of management 

problems, and GAO issued a steady stream of reports over the next 

few years.51

50Financial Management: Defense Business Operations Fund Implementation

Status, GAO/T-AFMD-92-8, 2 (1992) (Statement of Assistant Comptroller General 

Donald H. Chapin before the Subcomm. on Readiness, House Comm. on Armed 

Services).

51E.g., Defense Business Operations Fund: DOD Is Experiencing Difficulty in

Managing the Fund’s Cash, GAO/AIMD-96-54 (April 1996); Defense Business

Operations Fund: Management Issues Challenge Fund Implementation, 

GAO/AIMD-95-79 (March 1995); Financial Management: Status of the Defense

Business Operations Fund, GAO/AIMD-94-80 (March 1994). 
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In 1996, as part of the National Defense Authorization Act for Fiscal 

Year 1996 (Pub. L. No. 104-106, § 371, 110 Stat. 186, 277), Congress 

repealed the 1991 provision and codified the DBOF in more detailed 

legislation, 10 U.S.C. § 2216a, which restricts 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. National 

Defense Authorization Act for Fiscal Year 1997, Pub. L. No. 104-201, 

§ 363, 110 Stat. 2422, 2493 (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.52

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, deals 

with the authority of federal agencies to charge for goods and 

services they provide—to other federal entities in the case of the 

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.”

52Memorandum from the Under Secretary of Defense (Comptroller), Subject: 

Working Capital Funds for Defense Support Organizations, December 11, 1996 

(copy on file with editors). The reorganization is noted in Navy Ordnance: Analysis

of Business Area Price Increases and Financial Losses, GAO/AIMD/NSIAD-97-74 

(March 1997). 
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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. Can’t 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.

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 Veterans Administration hospital water filtration plant (55 Comp. 
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Gen. 688 (1976)); and surplus steam from a government power plant 

(A-34549, December 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, 1948.53 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 units of state or local government. 31 Comp. 

Gen. 624 (1952). Applications of the rule include 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, 334-335 (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), recons. denied, 359 F. Supp. 136 (D. Mont. 1973), in 

which the 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 

53The result in B-69238 was modified by B-69238, September 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 as 

miscellaneous receipts. 
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effect of holding that the [Federal Highway Administration] may become a partner 

in private enterprise without explicit statutory authority.” 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,”54 or “any charge collected from recipients 

of Government goods, services, or other benefits not shared by the 

public.”55

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 don’t 

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’ve never used it you can’t get your money back. You 

can use the postage stamp for its intended purpose, or you can save 

54Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A Legal and

Economic Analysis, 67 B.U.L. Rev. 795, 800 (1987). This is a comprehensive and 

valuable reference on the subject. 

55The Congress Should Consider Exploring Opportunities to Expand and Improve

the Application of User Charges by Federal Agencies, GAO/PAD-80-25 (March 28, 

1980), at 1. 
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it. Although you can’t sell it back to the post office, it never loses its 

face value as long as it remains unused.56

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. 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 (August 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,57 they received 

relatively little attention prior to the final third of the 20th century. In 

March 1980, GAO issued its report The Congress Should Consider

Exploring Opportunities to Expand and Improve the Application of

User Charges by Federal Agencies, GAO/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 

56The further categorization of user fees is beyond our scope. Two approaches may 

be found in studies by the Congressional Budget Office—Charging for Federal

Services 10 (December 1983) and The Growth of Federal User Charges 3-7 (August 

1993). 

57See, e.g., United States v. Grimaud, 220 U.S. 506, 521-522 (1911), to the effect that a 

statute addressing the use or disposition of fees implicitly authorizes imposition of 

the fees. 
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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.58 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% in constant 

dollars, and financed much larger shares of many agencies’ budgets. 

CBO, Growth of Federal User Charges (1993). 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 operations, 

Federal User Fees: Budgetary Treatment, Status, and Emerging

Management Issues, GAO/AIMD-98-11 (December 1997).

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 (October 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.

58A few examples are U.S. Forest Service: Fees for Recreation Special-Use Permits

Do Not Reflect Fair Market Value, GAO/RCED-97-16 (December 1996); Federal

Lands: Fees for Communications Sites Are Below Fair Market Value, 

GAO/RCED-94-248 (July 1994); INS User Fees: INS Workinq to Improve

Management of User Fee Accounts, GAO/GGD-94-101 (April 1994); USDA

Revenues: A Descriptive Compendium, GAO/RCED-93-19FS (November 1992); and 

Parks and Recreation: Recreational Fee Authorizations, Prohibitions, and

Limitations, GAO/RCED-86-T49 (May 1986). In addition, GAO/PAD-80-25 includes a 

4-page appendix listing reports issued in the 1969-1978 period. 
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3. The Independent Offices 

Appropriation Act

a. Origin and Overview In 1950, the Senate Committee on Expenditures in the Executive 

Departments (the forerunner of the Committee on 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.” 

Id. 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 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, known 

as the “IOAA” or the “User Charge Statute.”59 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 

59For 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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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—

“(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, April 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; 

42 Comp. Gen. 663 (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., September 10, 1976; B-114829-O.M., June 11, 1975.60 

Guidance for the executive branch is found in Office of Management 

and Budget Circular No. A-25 (1993), entitled “User Charges.”

60One occasionally encounters a description in mandatory terms. E.g., Bunge Corp. 

v. United States, 5 Cl. Ct. 511, 515 (1984) (“The IOAA directs all federal agencies to 

charge fees . . .”), aff’d, 765 F.2d 162 (Fed. Cir. 1985). However, no one has ever 

actually applied it that way. 
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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).

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.” 

Gillette and Hopkins, supra note 54, at 826-27 (footnote omitted).

b. Fees v. Taxes The government has many ways to get money. 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.” Id. at 340. Taxes, on the other 

hand, need not be related to any specific benefits. Congress can take 

your money by taxation merely because you have it to be taken. Id. 

at 340-41. The distinction had lurked in the bushes since shortly 

after the IOAA was enacted. In B-108429, March 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, which had been under pressure from both Congress 

and the Office of Management and Budget to recoup its full costs 

from the highly profitable industry it regulated. After drawing the 

distinction noted above, the Court added that the primary measure 

of a fee under the IOAA is the “value to the recipient” standard of 
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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,61 which would at least 

arguably amount to levying a tax. Holding that the FCC could not do 

so, the Court considerably narrowed the scope of the IOAA, stating:

“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’.” 415 U.S. at 341. 

By adopting this narrower 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 tend to indicate 

assessments more in the nature of taxes.” 415 U.S. at 341. As lower 

courts have recognized, National Cable Television effectively “read 

[these two criteria] out of the statute.” E.g., Seafarers Internat’l 

Union v. Coast Guard, 81 F.3d 179, 183 (D.C. Cir. 1996); Bunge Corp.

v. United States, 5 Cl. Ct. 511, 515 (1984), aff’d mem., 765 F.2d 162 

(Fed. Cir. 1985).”

On the same day it decided National Cable Television, the Court also 

decided the companion case of FPC v. New England Power Co., 

415 U.S. 345 (1974), applying National Cable Television to invalidate 

annual assessments levied on pipeline companies by the Federal 

Power Commission. The Court agreed with the Court of Appeals for 

the District of Columbia Circuit (467 F.2d 425) that the IOAA does 

not authorize assessments on whole industries, but applies only 

with respect to “specific charges for specific services to specific 

individuals or companies.” 415 U.S. at 349. The Court noted with 

approval portions of OMB Circular No. A-25, now found at sections 6 

(agencies should assess user charges to “identifiable recipients” ),62

and 6a(4) (agencies should not assess fees “when the identification 

61“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.” 415 U.S. at 343. 

62The 1993 revision of OMB Cir. No. A-25 changed “should” to “will.” 
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of the 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. 415 U.S. at 351.

Notwithstanding overbroad language occasionally encountered in 

some lower court decisions,63 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 taxes. Indeed, as we will see later 

under the Other Authorities heading, 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

In order to assess fees under the IOAA, an agency must first issue 

regulations. Sohio Transportation Co. v. United States, 766 F.2d 499, 

502 (Fed. Cir. 1985); A1yeska 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, 732-733 (1986), aff’d, 831 F.2d 1043 (Fed. 

Cir. 1987) (issuance of regulations a “condition precedent”). All of 

these cases applied the original language of the IOAA (each agency 

“is authorized by regulation to prescribe” fees, 65 Stat. 290), under 

which the requirement was clear beyond question. The 1982 

recodification into 31 U.S.C. § 9701 as quoted above (“each 

agency . . . may prescribe regulations”) muddied the water 

somewhat, although the substance is not supposed to change.

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 (2d Cir. 1974). 

Rather, since rulemaking under the Administrative Procedure Act 

must provide the opportunity for public comment, 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 

63See Gillette and Hopkins, supra note 54, at 823. 
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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 IOAA

The first step in establishing a fee or fee schedule under the 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 at 1100. Thus, the threshold question is what kinds of 

government services or activities are regarded as conferring special 

benefits for purposes of the IOAA?64 The statute itself refers merely 

to “a service or thing of value provided by the agency.” 31 U.S.C. 

§ 9701(b). That this phrase should be construed broadly65 is made 

clear by comparing 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, section 6a, provides further guidance.

64Some 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. 

65Ayuda, Inc. v. Attorney General, 848 F.2d 1297 1300 (D.C. Cir. 1988). 
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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 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 (license from NRC to operate nuclear facility); 

National Cable Television, 554 F.2d at 1103 (grant of operating 

authority by FCC); B-217931-O.M., April 2, 1985 (drug and antibiotic 

review and approval by 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 (lst 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, e.g., 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. FERC, 852 F.2d 612, 617 (D.C. Cir. 1988) (rate 

reduction application); Phillips Petroleum Co. v. FERC, 786 F.2d 370, 

376 (10th Cir. 1986), cert. denied, 479 U.S. 823; Mississippi Power &

Light, 601 F.2d at 231 (routine safety inspections of nuclear 

facilities); B-216876, January 30, 1985 (internal memorandum) 

(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).
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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-of-way over public lands. B-118678, May 11, 1976. Rights-ofway 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 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, August 20, 

1976), and commercial leasing by the Alaska Railroad 

(B-124195-O.M., April 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, April 

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. IOAA user fees have been held 

appropriate for such things as 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., September 17, 

1976). Examples from the procurement arena are B-209933, June 6, 

1983 (fee for solicitation documents) and B-184007, September 24, 

1975 (fee for copy of bid abstract). 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 the best they could under it until 
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something better comes along.66 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, 287 (1982); 

B-166506, October 20, 1975. See also Chapter 3 of GAO’s report ADP

Acquisition: SEC Needs to Resolve Key Issues Before Proceedinq

With Its EDGAR System, GAO/IMTEC-87-2 (October 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, August 21, 1987. An example of the latter 

is the range of adjudicatory services rendered to aliens by the 

Immigration and Naturalization Service. 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.” 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, 827 F.2d 

257 (7th Cir. 1987). Fees may be charged even to involuntary 

66Electronic 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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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. Otasco, Inc. v. United

States, 689 F.2d 162 (10th Cir. 1982), cert. denied, 460 U.S. 1069; 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 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:

• Fees charged to nonfederal participants in government-sponsored 

conference. B-190244, November 28, 1977.
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• Surcharge for expedited processing of passport applications.

B-118682, June 22, 1970.67 (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, August 1, 1963 (private

disability income insurance).68 OPM’s regulations implementing 

5 U.S.C. § 5525 are found at 5 C.F.R. Part 550, Subpart C.

(3) Public v. private benefit

The Supreme Court, in its National Cable Television decision 

discussed earlier, 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 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.

Although the Supreme Court has not revisited the IOAA since its two 

1974 decisions, two important principles have emerged from the 

body of lower court jurisprudence:69

1. When establishing a fee for a specific benefit conferred on an 

identifiable beneficiary, the agency must exclude expenses incurred 

in serving some independent public interest.

67The 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 (1994). 

68GAO 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). 

69Mississippi Power & Light Co. v. United States Nuclear Regulatory Commission, 

601 F.2d 223, 229-230 (5th Cir. 1979), cert. denied, 444 U.S. 1102; Phillips Petroleum

Co. v. Federal Energy Regulatory Commission, 786 F.2d 370 (10th Cir. 1986), cert.

denied, 479 U.S. 823; 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); Engine Manufacturers Ass’n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994); OMB 

Circ. No. A-25, section 6a(3). 
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2. 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 Internat’l Union v. Coast Guard, 81 F.3d 179, 183-185 (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 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. In 1976, in an 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.
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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 Company v. Andrus, 433 F. Supp. 144 (D. Colo. 1977), in 

which the plaintiffs had sought rights-of-way 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. Id. at 153.

While Public Service has never been directly overruled,70 this 

portion of it has been effectively repudiated. The Fifth Circuit 

considered the issue in connection with Nuclear Regulatory 

Commission 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. v. NRC, 601 F.2d 223, 231 (5th Cir. 

1979), cert. denied, 444 U.S. 1102. A few years later, the Tenth 

Circuit, the governing circuit of the Colorado court which decided 

the Public Service case, said the same thing. Nevada Power Co. v.

Watt, 711 F.2d 913, 933 (10th Cir. 1983).71 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 Company v. United States, 5 Cl. Ct. 620 (1984), aff’d, 

766 F.2d 499 (Fed. Cir. 1985).

70An 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). 

71Nevada 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). 711 F. 2d. at 933. See also

Alumet v. Andrus, 607 F.2d 911 (10th Cir. 1979). 
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(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 

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. It remains to translate this into dollars and cents.

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). 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); OMB 

Circ. No. A-25, sec. 6d; B-237546, January 12, 1990. As GAO points 

out, the original version of the IOAA specified direct and indirect 

costs (65 Stat. 290), but the 1982 recodification into 31 U.S.C. § 9701 

dropped the words as unnecessary. B-237546, January 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), amplified, 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 &
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Light Co. v. United States Nuclear Regulatory Commission, 601 F.2d 223, 232 (5th 

Cir. 1979), cert. denied, 444 U.S. 1102.

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.; 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 OMB Circular No. A-75 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.

The fee cannot exceed the agency’s cost of rendering the service. 

Central & Southern 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 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 Internat’l Union v. 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. 

Nonetheless, the law seems to require that “value to the recipient” 

be taken into consideration. Perhaps it can be said that cost to the 
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government can be presumptively regarded as reflecting value to the 

recipient, unless considerations of “fairness” dictate otherwise.

Applying these principles, assuming one could hypothesize a highcost but low-value service, the agency might well not be able to 

recover its full costs.72 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 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. B-237546, January 12, 1990; Capital Cities

Communications, Inc. v. FCC, 554 F.2d 1135, 1138 (D.C. Cir. 1976). Of 

course there is no objection to use of a sliding scale if the graduated 

fees in fact reflect graduated costs. B-237546, supra; Electronic

Industries Ass’n, 554 F.2d at 1116.

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 Requlatory Commission, 

786 F.2d 370 (10th Cir. 1986), cert. denied, 479 U.S. 823, 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 

72Gillette and Hopkins conclude that “[i]n effect courts limit fees to either cost to 

the government or value to the beneficiary, whichever is lower.” Gillette and 

Hopkins, supra note 54, at 839. 
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this system in accord with the IOAA and a reasonable exercise of the 

agency’s discretion, not just a pretext to avoid work. Id. at 378-379.

If any of this sounds easy, it is not. The D.C. Circuit conceded the 

“extreme difficulty” of the task, which, it said in an oft-quoted 

passage, “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-201667-0.M., May 5, 1981. A more detailed 

discussion may be found in Establishing a Proper Fee Schedule

Under the Independent Offices Appropriation Act, 1952, 

GAO/CED-77-70 (May 6, 1977).

The foregoing discussion has all been in the context of providing 

services. The same rules do not necessarily apply when the 

government is selling goods or property. In this connection, OMB 

Circular No. A-25, sec. 6a(2)(b), provides:

“[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.”

The Court of Claims has upheld this approach. Yosemite Park and

Curry Co. v. United States, 686 F.2d 925 (Ct. Cl. 1982). That case 

involved a contract for the sale of electricity by the National Park 

Service to a concessioner at Yosemite. The court found that the costbased system stemming from the two 1974 Supreme Court decisions 

was not required in the situation presented, and that the government 

could use the comparative-rate system derived from the OMB 

circular.

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 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 

refunded the cable television fees it had collected under the 
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schedule the Court struck down.73 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 Commission should retain the 

maximum portion of the fees collected that would be permissible under the 

principles announced in [the 1974 Supreme Court decisions] and the statute.” 

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. Id. 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 

73National Cable Television Ass’n v. FCC, 554 F.2d 1094, 1098 n.9 (D.C. Cir. 1976). 
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established fee and must refund only the excess—is circumscribed 

by considerations of retroactive rulemaking, one situation in which 

refund of the entire fee would appear appropriate is where the 

agency did not have regulations to begin with. The Court of Claims 

reached this result in A1yeska Pipeline Service Co. v. United States, 

624 F.2d 1005 (Ct. Cl. 1980). See also B-145252,November 12, 1976 

(internal memorandum).

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). 55 Comp. Gen. 243 (1975);74

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.” 43 U.S.C. § 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 A-25, sec. 6a(2)(c), 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 

74The 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. 
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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 

presumably 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 performance, then transferred 

to the appropriate general fund receipt account. See, e.g., A-44005, 

April 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 Ass’n of

America, 732 F.2d at 225-226. 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 IOAA For approximately 35 years, although there were other fee statutes 

on the books, the IOAA was the predominant federal user fee 

statute, and 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 
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source. Starting in 1986, Congress enacted dozens of fee provisions 

directed at particular agencies or activities.75

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

“(2) prescribing bases for determining charges, but a charge may be redetermined under this section consistent with the prescribed bases.”76

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 subsection (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 one-year experiment in financing 

federal meat inspections through user fees. See S. Rep. No. 81–2120, 

supra, at 5; 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 

75They tend to be found in omnibus legislation. Several important provisions 

appeared in the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. 

No. 99-272, 100 Stat. 82), the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 

No. 99-509, 100 Stat. 1874), and the Omnibus Budget Reconciliation Act of 1990 

(Pub. L. No. 101-508, 104 Stat. 1388). For more detail, see CBO, The Growth of

Federal User Charges 19-22 (August 1993), and The Growth of Federal User

Charges: An Update (October 1995). 

76In the recodified version carried in the U.S. 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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the IOAA, effectively requiring more explicit authority. A proviso in 

the Food and Drug Administration’s 1996 appropriation, for 

example, 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.” Pub. L. No. 104-37, 109 Stat. 299, 327 

(1995). 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.

GAO stated its approach to subsection (c) vis-a-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.”

b. IOAA Incorporated by 

Reference

One form of user fee statute is based directly on the 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. The 

reference to the IOAA also serves as a check against excessive fees. 

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 OBRA:

“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.
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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 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 (2d Cir. 1974); B-161499-O.M., August 13, 1971. The Freedom 

of Information Act now includes its own detailed fee provisions.

A variation is 7 U.S.C. § 2242a. Subsection (a) authorizes the 

Department of Agriculture to charge reasonable user fees for 

departmental publications or software. Subsection (b) then goes on 

to state that “[t]he imposition of such charges shall be consistent 

with section 9701 of title 31.” GAO analyzed USDA’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].” Id.

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 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—i.e., statutes dealing with the same 

subject matter or having a common purpose (Black’s Law Dictionary

791 (6th ed. 1990))—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. This includes the guidance 

under OMB Circular A-25. See OMB Cir. No. A-25, sec. 4.b.
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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. § lb(4). In Yosemite Park and 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. § lb(4) and the 

IOAA as being “in pari materia,” the court analyzed the propriety of 

the fee structure under the IOAA, as implemented by OMB Circular 

No. A-25, and found it authorized under both statutes.

Another illustration is 30 U.S.C. § 185(1), 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 . . . .”

This provision does not supersede or override the requirement of 

the IOAA that fees be assessed only pursuant to regulations. 

A1yeska Pipeline Service Co. v. United States, 624 F.2d 1005 (Ct. Cl. 

1980); 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.

The Communications Satellite Act of 1962 directs the National 

Aeronautics and Space Administration to furnish satellite launching 

and associated services to the Communications Satellite 

Corporation upon request and “on a reimbursable basis.” 47 U.S.C. 

§ 721(b)(3). Reimbursement under this provision should be 

determined in accordance with the IOAA, GAO has concluded, since 

nothing in the language or legislative history of the Communications 

Satellite Act suggests the contrary. B-168707-O.M., May 11, 1970. The 

same applies to 22 U.S.C. § 2661, which requires the State 

Department to obtain reimbursement for certain expenses incurred 

in procuring information for private parties. See 36 Comp. Gen. 75 

(1956). Another example might be 13 U.S.C. § 8(b), which authorizes 

the Secretary of Commerce to provide statistical information to, or 
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to make special statistical compilations and surveys for, any public 

or private person “upon payment of the actual or estimated cost of 

such work.”

A final 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 ed.). 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), aff’d sub

nom., First National Bank of Milaca v. Heimann, 572 F.2d 1244 (8th 

Cir. 1978). The district court rejected the bank’s argument that 

31 U.S.C. § 9701(c) rendered the IOAA inapplicable; 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. 445 F. Supp. at 1123. A 1991 amendment to 12 U.S.C. 

§ 482 deleted the asset/resource size requirement and the statute 

now merely provides a general assessment requirement. The 

amendment does not appear to affect the relationship of section 482 

to the IOAA.

d. Statutes Entirely Independent 

of the IOAA

Once you eliminate those user fee statutes that are tied in to the 

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). 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):
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“In addition to any other fee authorized by law, the Attorney General shall charge 

and collect $6 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.”

Subsection (e) sets forth limitations. While this type of statute may 

generate other questions of interpretation, 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, 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.’ Massachusetts v. United States, 435 U.S. 444, 463, n.19 

(1978).” 493 U.S. at 60. 

The statute declared the deduction to be a user fee, and it is the 

claimant’s burden to demonstrate otherwise. Id. Of course there are 

limits to this rationale. The Court continued:

“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 
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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. 

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.

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, basically enough to escape the aegis of the IOAA. 

Section 304 of the Federal Land Policy and Management Act, for 

example, 43 U.S.C. § 1734, 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 

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 

fee-setting mechanism set forth in considerable detail, often 

including waiver authority. One example is 7 U.S.C. § 136a-1, 

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. The law authorizes three fees—drug application 

fees, establishment fees, and product fees. The fees are fixed dollar 

amounts subject to an adjustment mechanism. The law also 

specifies aggregate fee revenue amounts which must be specified in 

advance in appropriation acts. Subsection (f)(1) of the law prohibits 
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the FDA from assessing fees in any fiscal year unless it has received 

a Salaries and Expenses appropriation for that year not less than its 

1992 appropriation.

A well-known user fee is the fee prescribed in the Freedom of 

Information Act, 5 U.S.C. § 552(a)(4), which illustrates still a 

different fee-setting approach. Fees are based on “reasonable 

standard charges” and are set at three levels. The highest level is 

commercial-use requesters, who pay for search, duplication, and 

review. The lowest level includes educational or noncommercial 

scientific institutions and the news media, who pay only for 

duplication. All others are charged for search and duplication. Each 

agency is to issue its own fee regulations, but in the interest of 

uniformity they must conform to Office of Management and Budget 

guidelines. OMB’s guidelines are found in 52 Fed. Reg. 10012 (March 

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).

Several user fee provisions were included in the Consolidated 

Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, 

100 Stat. 82—“COBRA.” The Congressional Budget Office has 

observed that if the IOAA was the first turning point in user fee 

legislation in the post-World War II era, COBRA was the second. 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 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), 
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cert. denied, 490 U.S. 1045. 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.” Id. 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 772-776.

The Omnibus Budget Reconciliation Act of 1990 added a 

provision,codified at 42 U.S.C. § 2214, directing the NRC to collect 

fees and charges to approximate 100 percent of its budget authority. 

The Justice Department’s Office of Legal Counsel has determined 

that this includes other federal agencies which hold NRC licenses. 

15 Op. Off. Legal Counsel 91 (preliminary print, 1991).

Another COBRA provision, now codified at 49 U.S.C. § 60301, 

directs the Secretary of Transportation to collect annual fees from 

operators of 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.” Id. 

at 223. 

As to the 1974 IOAA cases:
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“National Cable Television and New England Power 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.” 

42 U.S.C. § 7178(a)(1). Like the NRC statute noted earlier, 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. 

42 U.S.C. § 7178(a)(2). A case interpreting the Power Act fee 

provision is City of Vanceburg v. FERC, 571 F.2d 630 (D.C. Cir. 1977), 

cert. denied, 439 U.S. 818.

A final example is 21 U.S.C. § 886a, enacted as part of the Justice 

Department’s 1993 appropriation act. 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(3). 

In American Medical Association 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.

In sum, we have the IOAA and its progeny designed to recover the 

cost of providing goods and services, and we have the COBRA 

provisions and their progeny designed to recover part or all of an 

agency’s operating budget. Perhaps the next step will be for 

Congress to tell an agency, in effect, “if you want to go in a particular 

direction, get the money from your customers.” Precedent for this 

approach already exists. The Federal Bureau of Investigation had 

received authority in appropriation acts to establish and collect fees 

for certain fingerprint and name check activities. The authority is 
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discretionary and applies to services provided to other federal 

agencies. 15 Op. Off. Legal Counsel 21 (preliminary print, 1991). The 

FBI’s 1991 appropriation made the authority permanent and 

authorized the agency to—

“establish such fees at a level to include an additional amount to establish a fund to 

remain available until expended to defray expenses for the automation of 

fingerprint identification services and associated costs.” Pub. L. No. 101-515, 

104 Stat. 2101, 2112 (1990), 28 U.S.C. § 534 note.

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 to the credit of the appropriate 

miscellaneous receipts account unless the agency has statutory 

authority to do something else.

a. Fees Under the IOAA Normally, fees collected under the authority of the IOAA must be 

deposited as miscellaneous receipts. E.g., 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 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 mem., 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-215127, October 30, 1984. Several of the decisions cited later in 

our case study of the Customs Service 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 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 
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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, subsection (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 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, 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, Availability of Appropriations: Amount.) 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 
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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 

congressional 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, 

21 U.S.C. § 379h. Subsection (g)(1) provides:

“Fees collected for a fiscal year . . . shall be credited to the appropriation account 

for salaries and expenses of the [FDA] and shall be available in accordance with 

appropriation Acts until expended without fiscal year limitation.”

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 1996 

appropriation act appropriated almost $85 million in fees under 

section 379h to the FDA’s Salaries and Expenses account. Pub. L. 

No. 104-37, title VI, 109 Stat. 299, 326 (1995). Another example of an 

“augmentation fee” is the FBI fingerprint and name check fee 

provision, cited previously, which also authorizes credit of the fees 

to the FBI’s Salaries and Expenses appropriation. Pub. L. 

No. 101-515, 104 Stat. 2101, 2112, 28 U.S.C. § 534 note.

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. 
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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.” 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).

Each statute must be examined to determine the availability of the 

fees to the collecting agency 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 the Immigration and Naturalization 

Service for detention, transportation, hospitalization, and other 

expenses of 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 the INS to purchase evidence and 

subsequently recovered are “reimbursed to the current 

appropriation” of the INS. 8 U.S.C. § 1356(b). More directly on point 

is 10 U.S.C. § 2481(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 (OMB Circular No. A-11, § 14.2(d)), 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 
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functions of the Commission.” 47 U.S.C. § 159(e). Similarly, the 

National Oceanic and Atmospheric Administration’s 1995 

appropriation act authorized it to assess fees to be “credited to this 

appropriation as offsetting collections to be available until 

expended, to recover the costs of administering marine sanctuary 

and aeronautical charting programs,” with the target of reducing the 

general fund appropriation by $6 million, at which point any 

additional fees are not available for obligation until the next fiscal 

year. Pub. L. No. 103317, title II, 108 Stat. 1724, 1741 (1994). The 

same appropriation provides that receipts from the sale of 

aeronautical charts resulting from an increase in price above a 

specified base level “shall be deposited in this account as an 

offsetting collection and shall be available for obligation.” (The base 

price, as noted above, goes to miscellaneous receipts.) 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.77 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. Subsection 79(j) provides:

“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(t)(1). Another example is 13 U.S.C. § 8(d) 

77See Budget Glossary Exposure Draft, supra note 15, at 5. 
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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:

“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.78 An example is 21 U.S.C. 

§ 886a, which establishes “in the general fund of the Treasury a 

separate account known as the Diversion Control Fee Account.” 

Certain fees charged by the Drug Enforcement Administration 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 operating costs. The Immigration and 

Naturalization Service has several similar accounts—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):

78An offsetting receipt is a form of offsetting collection which is credited to a receipt 

account rather than an appropriation account. Budget Glossary Exposure Draft, 

supra note 15, at 27-29. Again, the terminology is significant primarily for budgetary 

purposes. 
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“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.”79

6. Customs Service: 

A Case Study

The Customs Service, because of the nature of its mission, 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 the Customs Service is instructive 

because it illustrates in practice virtually every concept and 

principle we have covered thus far in our discussion.

In the decades before the IOAA was enacted, Customs 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 Customs’ 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 in place, 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.

79A “proprietary receipt” is simply a type of offsetting receipt representing 

collections from outside the government. Budget Glossary Exposure Draft, supra

note 15, at 29. 
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• 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, December 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 Customs regulations and 

procedures. 62 Comp. Gen. 262 (1983).

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. The 

Customs 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 Customs regulations at 19 C.F.R. § 147.33, which 

requires that fair operators reimburse the Customs Service 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): “housing allowances, 

post of duty allowances, home leave and associated transportation 

costs, and equipment, supplies and administrative costs over and 

above that which Customs would normally incur.” In addition, 

Customs could include that portion of the costs of its computerized 
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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 and 

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 during regular business hours on behalf of 

the general public would constitute an augmentation of [Customs appropriations].” 

Id. at 296.

While all of this IOAA activity was going on, the Customs Service 

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). Each of 

these statutes directs that the compensation of the customs officers 

performing the services “shall be reimbursed“ by the appropriate 

owner, proprietor, or “party in interest.”80 These and other situations 

are set forth in Customs regulations, 19 C.F.R. § 24.17. At one time, 

the reimbursement obligation was held to include statutorily 

80“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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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. 

Customs 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 become economically obsolete (for example, 20 cents for 

various documents). Legislation in 1978 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 ed.) for the 20-

cent items noted above.

During the mid-1980s, the Customs Service 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 1984,81 now codified at 19 U.S.C. § 58b, which 

authorized user fees to cover the cost of providing customs services 

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 

81Pub. L. No. 98-573, § 236, 98 Stat. 2948, 2992 (1984). 
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dedicated to the particular airport which earned them, but required 

further appropriation action to make them available for obligation. 

Two years later, COBRA 1985 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.82 The law was expanded in 1989 to include seaports and 

other facilities.83

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.84 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 and ad valorem levies, applicable to a variety 

of passenger and merchandise processing services. It also includes a 

variety of qualifications and limitations.

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 subsections (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 the Customs Service’s 

commercial operations. The rest of the fees—those prescribed by 

19 U.S.C. § 58c(a) except for subsections (9) and (10)—are, in 

grossly oversimplified terms, permanently appropriated to be used 

to, in this order: (1) reimburse Customs appropriations for costs 

incurred for overtime compensation; (2) make a deficit reduction 

transfer to the general fund of the Treasury, potentially as much as 

$18 million per year, supposedly reflecting savings in overtime 

payments; 

(3) reimburse Customs appropriations for the costs of premium pay, 

agency contributions to the Civil Service Retirement and Disability 

Fund, preclearance services for which reimbursement is not 

82Pub. L. No. 99-272, § 13032, 100 Stat. 82, 310 (1986). 

83Pub. L. No. 101-207, § 3(f), 103 Stat. 1833, 1835 (1989). 

84A 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 Pub. Budgeting & Fin. 78 (1988). More recent information may be found 

in a GAO report, Customs Service: Information on User Fees, GAO/GGD-94-165FS 

(June 1994). 
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otherwise required,85 and foreign language proficiency awards; 

(4) maintain a $30 million contingency fund; and (5) if there is 

anything left, hire personnel and procure equipment to enhance 

services to fee-payers, to be distributed in proportion to the fees 

collected under subsections (a)(1) through (a)(8).

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 the Customs Service is not authorized to 

charge express air freight carriers for clearance services at 

centralized hub facilities during normal duty hours. The law 

provides for charges at centralized hub facilities, but incorporates a 

definition from Customs regulations which was limited to services 

outside of regular operating hours. See 19 U.S.C. §§ 58c(b)(9) 

and (e)(6). Another decision advised that user fees reimbursed to 

appropriations under 19 U.S.C. § 58c(f)(3)(A)(i) could be used to 

defray inspectional overtime costs in the Commonwealth of Puerto 

Rico but not the U.S. Virgin Islands. B-253292, December 30, 1994.

7. User Fee as 

Grant Condition

In our chapter 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).

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:

85This, in conjunction with portions of 19 U.S.C. § 58c(e), represents a change from 

the IOAA proposals GAO had previously reviewed, although the preclearance 

expenses are still user-funded. 
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“[T]he Administrator shall not approve any grant for any treatment works under 

section 1281(g)(1) of this title . . . 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 (3d Cir. 1982).

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, 

February 25,1976, and B-166506, October 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.

• 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, February 25, 1976; B-183788, 

January 14, 1976. The important thing is that whatever system is 

adopted must “achieve a greater degree of proportionality among 
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users than is obtainable through an ad valorem tax system.” 

B-183788, June 13, 1975.

The controversy continued and, as documented in B-166506, 

August 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 1977 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 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.

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 (3d Cir. 1982), cert. denied, 460 U.S. 1023; 

City of New Brunswick v. Borough of Milltown, 686 F.2d 120 (3d 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 
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withhold funds conceded). EPA’s remedies are spelled out in its 

regulations, 40 C.F.R. §§ 35.929 and 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 any branch of the 

Government service.”86 The law was restated as part of the 

Administrative Expenses Act of 194687 and amended 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 so-called 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 this 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 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 

86Act of July 16, 1914, ch. 141, § 5, 38 Stat. 454, 508. 

87Pub. L. No. 79-600, § 16(a), 60 Stat. 806, 810 (1946). 
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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., November 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 passengercarrying 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. E.g., 8 Comp. 

Gen. 636, 637 (1929) and 23 Comp. Dec. 19, 20 (1916).

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 
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held not to be passenger vehicles for purposes of 31 U.S.C. 

§ 1343(b). 23 Comp. Gen. 955 (1944).88 Nor are motor boats, 

“vehicle” being defined in terms of land transportation. 22 Comp. 

Dec. 262 (1915); 26 Comp. Dec. 904 (1920). 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 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 doesn’t 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., January 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, 

January 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. 27 Comp. Dec. 1016 (1921); 4 Comp. Gen. 141 

(1924).

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 

88The courts have held that a jeep is a passenger vehicle for transportation rate 

classification purposes. E.g., Union Pacific R. Co. v. United States, 91 F. Supp. 762 

(Ct. Cl. 1950) (the leading case on the point); United States v. Louisville & Nashville

RR., 217 F.2d 307 (6th Cir. 1954). Although GAO has followed these cases in the 

transportation rate context (e.g., B-145028, August 8, 1961), they have never been 

held to affect 23 Comp. Gen. 955. 
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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 enactment of 31 U.S.C. § 1343(b) used only the word 

“purchase.” 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 recodification of Title 31. 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. 

21 Comp. Dec. at 463; 33 Comp. Gen. 563 (1954); 2 Comp. Gen. 693 

(1923). 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 the Federal Property and 

Administrative Services Act, with or without reimbursement, is a 

“purchase” requiring specific authority under subsection (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, 

February 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. 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 lumpsum appropriation; the legislation may specify the number of 

vehicles authorized to be acquired. Following are a few random 

examples to illustrate the variety:
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• The Navy’s 1995 Other Procurement appropriation was available for 

“the purchase of not to exceed 262 passenger motor vehicles, of 

which 162 shall be for replacement only.” Pub. L. No. 103-335, 

108 Stat. 2599, 2609 (1994).

• A proviso in the 1995 appropriation for the Office of the Director, 

National Institutes of Health, stated that “funding shall be available 

for the purchase of not to exceed five passenger motor vehicles for 

replacement only.” Pub. L. No.103-333, 108 Stat. 2539, 2553 (1994).

• A general provision in the Commerce Department’s 1995 

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. 103-317, § 202, 108 Stat. 1724, 1748 (1994).

• The Federal Aviation Administration’s 1997 Operations 

appropriation was made available for “lease or purchase of four 

passenger motor vehicles for replacement only.” Pub. L. 

No. 104-205, 110 Stat. 2951, 2955 (1996).

For some agencies, authority exists in permanent legislation. An 

example is 50 U.S.C. § 403j(a)(t), 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.

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 (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, the ceiling 

applied to vehicles “completely equipped for operation.” This 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 
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legislation, they reached a level of trivia in which GAO was asked 

whether such items as a replacement gas cap and an extra length of 

heater hose were chargeable against the ceiling. See B-140843, 

October 19, 1959 (internal memorandum).

In 1970, Congress amended the law (Pub. L. No. 91-423, 84 Stat. 879), 

and it is now found at 31 U.S.C. § 1343(c):

“(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 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 

government-wide general provision in the Treasury, Postal Service 

Appropriation Act. For fiscal year 1997, 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 . . . .”89

The first feature to note about 31 U.S.C. § 1343 is that the 

exemptions for subsection (b) differ from those for subsection (c). 

89Treasury, Postal Service and General Government Appropriations Act, 1997, § 604, 

Pub. L. No. 104-208, § 101(f), 110 Stat. 3009, 3009-353 (1996). 
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Subsection 1343(b) precludes the use of appropriated funds to 

acquire vehicles for the use of anyone other than certain specified 

officials. Subsection (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 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 subsection (c). B-81562, 

December 1, 1948. The price limitation has been held inapplicable to 

purchases from a trust fund made up of testamentary gifts. 

B-78578, August 4, 1948.

Under 31 U.S.C. § 1343(c), 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 12290 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). 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, February 18, 1975. 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.

Subsection (c)(1)(B) specifies that any trade-in value is part of the 

total cost chargeable against the ceiling. This means that the 

90GSA 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. 
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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); 

17 Comp. Gen. 580 (1938). 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, October 20, 1948. However, the 

valuation must not be a sham to avoid the statutory limitation. 

17 Comp. Gen. 911, 913 (1938) (“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. 17 Comp. Gen. at 582; 28 Comp. 

Gen. 495. 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).

Subsection (c) 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, 

March 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.
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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 originated as a government-wide 

general provision in appropriations 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, and was 

reenacted in 1986 as part of the general revision of 31 U.S.C. § 1344.

The coverage of the statute is unusually broad. The phrase 

“appropriation or otherwise” covers all types of funding. Subsection 

(g)(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.” Subsection 

(g)(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. Subsection 

(h) even drags in the Postal Service. As did the Administrative 

Expenses Act of 1946, the law exempts the Senate, House of 

Representatives, and Architect of the Capitol.

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.

By far, the overwhelming majority of activity under 31 U.S.C. § 1344 

has involved home-to-work transportation, what one Senator once 
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called “the ultimate status symbol for a Federal bureaucrat.”91 

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 commuting is the 

personal responsibility—and personal expense—of the individual. 

E.g., 27 Comp. Gen. 1 (1947); 19 Comp. Gen. 836 (1940); B-233591, 

September 21, 1989. From this rule 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 of the Administrative Expenses Act of 

1946 (60 Stat. 810) included a home-to-work prohibition with a few 

exceptions. While the very existence of the statute perhaps deterred 

excessive 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 (1946). 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.

Home-to-work transportation became the “topic du jour” of the early 

1980s and, in 62 Comp. Gen. 438 (1983), GAO tried to resolve the 

confusion. The thrust of 62 Comp. Gen. 438 was 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 is statutorily prohibited, period. 

Agencies have no discretion to exercise in the matter. The decision 

(id. 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, 

91132 Cong. Rec. 30249 (1986) (Sen. Proxmire). 
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had contributed to the confusion on this issue. Thus, GAO both 

applied its decision prospectively, and suspended its application 

entirely—pending 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.92

In 1986, Congress enacted Public Law No. 99-550, 100 Stat. 3067, 

which completely overhauled 31 U.S.C. § 1344. The objective was 

clear:

“Whatever the cause for the continued violation of 31 U.S.C. 1344, it 

is obvious that legislation is needed to end the confusion, by 

providing clear congressional guidance which will prevent future 

waste of government funds.” H. R. Rep. No. 99-451, at 5 (1985), 

reprinted in 1986 U.S.C.C.A.N. 5171, 5175.

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” means that 

31 U.S.C. § 1344 prevails over any other inconsistent legislation 

unless enacted in specific contravention of that section. H.R. Rep. 

No. 99-451 at 7, 1986 U.S.C.C.A.N. at 5177. 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 home92E.g., Use of Government Motor Vehicles for the Transportation of Government

Officials and the Relatives of Government Officials, GAO/GGD-85-76 

(September 16, 1985); Use of Government Vehicles for Home-to-Work

Transportation, GA0/NSIAD-83-3 (September 28, 1983). 
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to-work transportation for purposes of 31 U.S.C. § 1344. 

41 C.F.R. § 101-6.400(b). This has always been the case. See, e.g., 

B-159210-O.M., January 4, 1967.

The statute also specifies the permissible exemptions. They fall into 

two categories—position and situation. Subsection (b) lists the 

position exceptions. The list starts, of course, with the President and 

Vice-President. 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: cabinet 

heads and a “single principal deputy” for each; Justices of the 

Supreme Court; principal diplomatic and consular officials abroad; 

several high-level military officials; Ambassador to the United 

Nations; CIA and FBI directors and Administrator of Drug 

Enforcement Administration; Chairman of the Board of Governors 

of the Federal Reserve; Comptroller General and Postmaster 

General.

What we call the situational exceptions are found in subsections 

(a)(2)(A), (a)(2)(B), and (b)(9). Subsection (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, is permissible when approved in writing by the 

agency head. “Field work” is—

“official work performed by an employee whose job requires the employee’s 

presence at various locations that are at a distance from the employee’s place of 

employment . . . or at a remote location that is accessible only by Governmentprovided transportation.” 41 C.F.R. § 101-6.401(g). 

The simple act of calling something a “field office” does not by virtue 

of that fact make the work performed there “field work.” Id. 

Subsection (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, November 21, 1979 (certain FBI agents 

authorized to take government vehicles home in order to maintain 
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emergency response capability).93 The“protective services” part of 

this exemption is reinforced by subsection (c) of the statute, which 

authorizes home-to-work transportation for anyone entitled to 

Secret Service protection under 18 U.S.C. § 3056(a).

Subsection (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, August 15, 1974. Of course, this presumes a real 

emergency. B-152006-O.M., July 26, 1965, quoting B-152006-O.M., 

October 22, 1963. (“[I]t is difficult to believe that 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 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. 31 U.S.C. 

§ 1344(e)(1).

A public transportation strike may trigger the emergency exception. 

The GSA regulations provide:

“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.” 41 C.F.R. 

§ 101-6.401(i). 

93Since subsection (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 GSA regulations. Those 

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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, August 3, 1981. 

In two other cases, however, the circumstances were found to 

justify exceptions. In a 1975 case, the local Social Security 

Administration Office 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 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 “excess 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.

In view of the comprehensive nature and intent of the 1986 

legislation, there are no longer any “nonstatutory” exceptions to 

31 U.S.C. § 1344. Home-to-work transportation may be provided only 

as authorized under the statute and GSA regulations. There is, for 

example, no authority for the government to provide, or pay for, 

home-to-work transportation in connection with the performance of 

overtime work. 16 Comp. Gen. 64 (1936); B-190071, May 1, 1978. It 

makes no difference that the additional work is performed on 

non-regular work days (B-171969.42, January 9, 1976), or is 

“call-back” overtime (36 Comp. Gen. 171 (1956); B-189061, March 15, 

1978).

Nor is there authority to provide home-to-work transportation for 

handicapped employees. B-198323-O.M., March 24, 1981. The 

situation in B-216602, January 4, 1985, could possibly be considered 

under the “compelling operational considerations” exception. The 

Solicitor of Labor had received a serious injury and during his 
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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. 

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 are 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 somehow be invoked, there is no authority for 

an agency to provide shuttle service for its employees to and from 

various intermediate areas. B-162326, September 14, 1967; 

B-183617-O.M., August 2, 1976. A more recent illustration is 

B-261729, April 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.

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 may choose to 

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 

set forth in 41 C.F.R. § 1016.403(a). Public access to these records 

would be governed by the disclosure requirements and exemptions 

of the Freedom of Information Act. B-233995, February 10, 1989. 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. Government Vehicles: Officials Now Rarely Receive
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Unauthorized Home-to-Work Transportation, GAO/GGD-91-27 

(March 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, March 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., August 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-211856-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, December 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 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 business, but 

in furtherance of an agency program was the subject of 63 Comp. 

Gen. 257 (1984). In that decision, the Veterans Administration 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 

now recognize this type of situation. See 41 C.F.R. § 101-6.405(e). 

Providing transportation to representatives of foreign nations is also 

an “official purpose.” B-216670, December 13, 1984.
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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 does not violate the statute. 

GAO, however, discouraged the practice because of the increased 

potential for government liability in the event of an accident. Id. 

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, November 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 

state-to-state variation. See B-231930, November 23, 1988 (internal 

memorandum). In any event, there is 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 willfully 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, 

sub nom. Cornelius v. Nutt, 472 U.S. 648 (1985).

GAO will not decide whether a violation is “willful.” B-275365, 

December 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.
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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:

• Using government vehicle to commute from duty station to law 

school classes. Aiu v. Department of Justice, 70 M.S.P.R. 509 (1996). 

• Driving loan officer to lawyer’s residence to sign papers on a 

personal loan. Madrid, 37 M.S.P.R. 418.

• 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, cited above, 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 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. 

§ 301-2.6(a). As it should be, the concept of official purpose is 

somewhat broader in the travel/temporary duty context than at the 

regular duty station. Id.; B-254296, November 23, 1993 (limited 
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recreational use permissible at remote location where no other 

transportation available).

It would appear that the Board’s “minor personal use” exception 

now has a statutory basis. Section 503 of the Ethics Reform Act of 

1989, Pub. L. No. 101-194, 103 Stat. 1716, 1755, as amended by Pub. L. 

No. 101-280, § 6(b), 104 Stat. 149, 160 (1990), 31 U.S.C. § 1344 note, 

provides, in part:

“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 . . . .”

While some would certainly like to view this as effectively negating 

the home-to-work prohibition, GAO regards it as

“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 . . . .” Government Vehicles: Officials Now

Rarely Receive Unauthorized Home-to-Work Transportation, GAO/GGD-91-27, 

8 (March 1991).

b. GSA Motor Pools Under section 211 of the Federal Property and Administrative 

Services Act of 1949, 40 U.S.C. § 491, the General Services 

Administration has broad authority to establish, operate, and 

discontinue interagency vehicle motor pools.94 Subsection (b) of the 

statute authorizes GSA, subject to regulations issued by the 

President and if determined advantageous in terms of economy, 

efficiency, or service, to—

“(1) consolidate, take over, acquire, or arrange for the operation by any executive 

agency of, motor vehicles and other related equipment and supplies for the purpose 

of establishing motor vehicle pools and systems to serve the needs of executive 

agencies; and (2) provide for the establishment, maintenance, and operation 

(including servicing and storage) of motor vehicle pools or systems for 

transportation of property or passengers, and for furnishing such motor vehicle and 

related services to executive agencies . . . . [GSA] shall, so far as practicable, 

provide any of the services specified in this subsection to any Federal agency . . . .”

94GSA now calls them “interagency fleet management systems.” They’re still motor 

pools. 
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The President’s regulations, mandated by 40 U.S.C. § 491(c), are 

contained in Executive Order No. 10579, November 30, 1954, 

40 U.S.C. § 486 note, section 11 of which authorizes GSA to issue 

supplementary regulations. GSA’s regulations are found at 41 C.F.R. 

Part 101-39. “Federal agency,” as used in 40 U.S.C. § 491(b), includes 

the judicial branch. B-158712, March 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, 

February 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 41 C.F.R. § 101-39.104-1(a). GSA must reimburse 

the fair market value only if the vehicle was originally acquired 

through a revolving fund or trust fund and not previously 

reimbursed. 40 U.S.C. § 491(g); 41 C.F.R. § 101-39.104-2. This does 

not include a reimbursable but non-revolving fund appropriation. 

38 Comp. Gen. 185 (1958).

GSA’s activities under 40 U.S.C. § 491 are financed through GSA’s 

revolving General Supply Fund (40 U.S.C. § 756) and must be 

reimbursed by the customer agencies. Under 40 U.S.C. § 491(d)(1), 

the Supply Fund is available for “all elements of cost . . . incident to 

the establishment, maintenance, and operation” of motor pools. 

Subsection (d)(2) provides that GSA should fix reimbursements so 

as to recover “all such elements of cost,” 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. Id. It also directs GSA to use accrual 

accounting. Id.; B-139506, October 1, 1959.

The General Supply 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 station 

and storage facilities. B-134511, March 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).
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A frequently recurring question has been 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 at page 307:

“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.”

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. § 491 and the implementing regulations override the 

nonstatutory rule 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. 41 C.F.R. 

§§ 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. 41 C.F.R. § 101-39.406(d).

GSA provides a range of services from short-term use to shuttle and 

driver services to indefinite assignment. 41 C.F.R. § 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 
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vehicle services provided under 40 U.S.C. § 491. B-158712, March 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., January 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.95 

Concerned with these numbers, Congress, as part of the 

Consolidated Omnibus Budget Reconciliation Act of 1985, enacted 

the provisions found at 40 U.S.C. §§ 901-913. 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 were identified in GAO/GGD-88-40, 

at 9 n.1. The legislation contained short-term cost-reduction goals 

(which GAO found in 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. § 901. The agency is also 

directed to develop a system to “identify, collect, and analyze” cost 

data with respect to its motor vehicle operations. 40 U.S.C. § 902.

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. 40 U.S.C. § 903(a). The President’s budget submission is to 

95Federal Motor Vehicles: Aqencies’ Progress in Meeting Expenditure Control

Requirements, GAO/GGD-88-40, 8 (March 1988). 
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include a summary and analysis of these statements. 40 U.S.C. 

§ 904(a).

GSA has a number of 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 

(40 U.S.C. § 902(b)); look for opportunities to consolidate vehicles, 

equipment, and related functions, with the goal of reducing the size 

and cost of the federal fleet (40 U.S.C. § 906(a)); reduce vehicle 

storage and disposal costs, and develop a program of vehicle 

reconditioning designed to improve the rate of return on vehicle 

sales (40 U.S.C. § 907).

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 

government-wide 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., Use of

Government Vehicles for Home-to-Work Transportation, 

GAO/NSIAD-84-27 (December 13, 1983) (presenting overtime data in 

tabular form).

While there are no government-wide provisions, there is the 

occasional restriction that appears in an appropriations act. For 

example, section 412 of the 1997 Departments of Veterans Affairs 

and Housing and Urban Development, 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. 

Section 406 is another general provision that reiterates the home-towork 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 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 Office Refurbishing, Use of a Government

Vehicle and Driver, and Out-of-Town Travel by the Former
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Administrator of Veterans Affairs, GAO/HRD-83-10 (January 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 non-driving 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 . . . from the prohibition.” 62 Comp. 

Gen. 438, 441 (1983). 

As support for this passage, the 1983 decision cited B-150989, 

April 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, 1344] that the use of automobiles by Cabinet 

officers, 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.”

These decisions would seem to support the proposition that an 

official who is authorized to use a government vehicle for home-towork transportation may also use a chauffeur unless restricted by 

some agency-specific legislation.

In a 1975 decision, B-162111, December 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. 
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Accordingly, and since congressional intent in the area was “quite 

uncertain,” GAO’s advice was to consider the case closed.

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 expense, and while GAO 

chided that it would have been cheaper to call a taxi, the choice 

could not be called illegal. B-194881, December 27, 1979.
Page 16-1 GAO-01-179SP Appropriations Law-Vol. IV

Real Property

Chapter 16

16

A. Introduction and Terminology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5

B. Acquisition of Real Property for Government Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-10

1. The Fifth Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-11

2. Federal Land Acquisition Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-13

3. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-18

a. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-19

(1) Debt security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20

(2) Donated property/funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-21

(3) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-21

(4) Indian tribal funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-23

b. Types of Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-23

(1) Express versus implied authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-23

(2) Forms of express authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-24

c. Effect of Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-30

4. Title Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-31

a. Title Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-31

b. Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-36

c. Title Evidence Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-37

(1) Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-37

(2) Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-38

(3) Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-39

5. Methods of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-41

a. Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-41

b. Involuntary Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-43

(1) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-43

(2) Sources of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-44

(3) Legislative taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-45

(4) Declaration of Taking Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-46

(5) “Complaint only” condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-51

(6) Inverse condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-53

6. Obligation of Appropriations for Land Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-54

a. Voluntary Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-54

b. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-55

7. Expenses Incident to Real Property Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-58

a. Expenses Incident to Title Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-58

b. Expenses Incident to Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-60

(1) Attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-60

(2) Litigation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-62
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C. Relocation Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-63

1. Uniform Relocation Act: Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-63

2. The Threshold Determination: Meaning of “Displaced Person” . . . . . . . . . . . . . . . . . . . . . . . . . . 16-66

3. Types and Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-73

a. Moving and Related Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-73

(1) Residential displacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-73

(2) Commercial displacements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-74

b. Replacement Housing Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-76

(1) Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-76

(2) Tenants and “90-day homeowners” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-79

c. Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-80

d. “Last Resort” Replacement Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-81

e. Federally Assisted Programs and Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-84

f. Procedures and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-87

4. Public Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-88

a. The Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-88

b. Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-92

(1) Uniform Relocation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-92

(2) 23 U.S.C. § 123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-94

(3) Other statutory provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-95

D. Jurisdiction Over Federal Land: The Federal Enclave . . . . . . . . . . . . . . . . . . . . . . . . 16-97

1. Acquisition of Federal Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-97

2. Specific Areas of Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-105

a. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-105

b. Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-107

c. State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-108

3. Proprietorial Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-113

E. Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

1. Some General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

a. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-116

b. Application of Fiscal Law Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-121

c. Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-124

d. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-127

(1) Advance payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-128

(2) Payment to legal representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-129

(3) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-129

2. Statutory Authorities and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-132

a. Federal Property and Administrative Services Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-132

b. Prospectus Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-136
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c. Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-137

d. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-140

e. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-141

f. Rental in District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-144

g. Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-148

h. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-149

3. Foreign Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-150

4. Lease-Purchase Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-153

F. Public Buildings and Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

1. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

a. General Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

(1) 41 U.S.C. § 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-161

(2) Contract authority under partial appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-167

(3) Duration of construction appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-168

(4) Design fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-170

b. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-176

(1) Military construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-176

(2) Continuing contracts: two variations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-178

(3) 7 U.S.C. § 2250 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-181

(4) 15 U.S.C. § 278d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-182

c. Public Buildings Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-183

d. Scope of Construction Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-187

2. Operation and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-192

a. Who’s in Charge? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-192

b. Allocation of Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-193

c. Alterations and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-194

d. Maintenance and Protective Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-196

e. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-197

f. Use Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-201

g. Payment of Rent by Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-201

G. Improvements to Property Not Owned By the Government . . . . . . . . . . . . . . . . . . . 16-206

1. The Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-206

2. Some Specific Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-210

a. Leased Premises/Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-210

b. Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-213

c. Public Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-216

d. Federal Aviation Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-217

e. Private Residences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-219
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H. Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-220

1. The Property Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-220

2. Disposal Under the Federal Property and Administrative Services Act . . . . . . . . . . . . . . . . . . . . 16-221

a. Excess Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-222

b. Surplus Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-224

c. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-230

d. Deduction of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-232

e. Disposal Under Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-233

3. Use by Nongovernment Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-235

a. Leasing and Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-235

(1) Outleasing in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-235

(2) 40 U.S.C. § 303b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-239

(3) Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-242

b. Granting of Revocable License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-244

4. Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-246
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Chapter 16

Real Property Chapte1r

16

A. Introduction and 

Terminology

Question: Who is the Nation’s biggest landowner?

Answer: Uncle Sam.

The federal government owns nearly one-third 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 slightly under one-third.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 Indians). 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 19th 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 19th century was, in 

a 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 19th century, 

and more rapidly in the 20th, federal policy shifted from disposal to 

1

More precisely, the figure was 29.15 percent as of 1990. Marla E. Mansfield, A

Primer of Public Land Law, 68 Washington Law Review 801, 802 n.1 (1993). The 

material in this Introduction has been distilled from many sources. A couple, in 

addition to the Mansfield article, are 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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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 relevance to 

land which is newly acquired now or in the future for a specific 

purpose.3

2

This policy is now reflected in the Federal Land Policy and Management Act of 

1976, which 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).

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.
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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, § 704(a), 90 Stat. 2792, 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 (id. § 701(c), 90 Stat. 2786), 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 invalidate prior withdrawals by 

executive action. Mollohan v. Gray, 413 F.2d 349 (9th Cir. 1969).

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. 

A discussion of this process may be found in a GAO report entitled 

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 Natural Resources Journal 279 (1982).
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Alaska Land Conveyance Program—A Slow, Complex, and Costly

Process, GAO/RCED-84-14 (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.

The lands managed by the Bureau of Land Management (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 19th 

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 

the BLM was established in 1946, it received jurisdiction over this 

land. For lack of a better designation, the lands are best referred to 

by the simple if nondescriptive term “BLM lands.” Much of the 

emphasis of federal land management in the future will center 

around these “BLM lands.”

The Forest Service, 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 

5

Alaska Statehood Act, 48 U.S.C. note prec. § 21; Alaska Native Claims Settlement 

Act, 43 U.S.C. ch. 33; Alaska National Interest Lands Conservation Act, 16 U.S.C. ch. 

51.

6

Real property management in the executive branch is outlined in capsule form in 

Exec. Order No. 12512 (April 29, 1985), 3 C.F.R. at 340 (1985), reprinted in 40 U.S.C. 

§ 486 note.
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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 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, 43 U.S.C. § 1702(e). 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 how the United States 

acquired ownership,” in other words, what we earlier referred to as 
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the “BLM lands.” The relationship between the statutory and 

common-law definitions is not without controversy. Compare

Columbia Basin, 643 F.2d at 601-602 (FLPMA essentially 

incorporated the traditional definition) with Sierra Club v. Watt, 

608 F. Supp. 305, 336-338 (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

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 The Federal Drive to Acquire Private Lands Should Be

Reassessed, GAO/CED-80-14 (December 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., Lands in the Lake Chelan National Recreation Area

Should Be Returned to Private Ownership, GAO/CED-81-10 

(January 22, 1981); The National Park Service Should Improve Its

7

Although GAO has been active in these areas from the audit perspective, they are 

beyond the scope of this publication. For a summary presentation of some of the 

issues and problem areas, see Land Use Issues: A GAO Perspective, 

GAO/CED-82-40 (February 25, 1982).
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Land Acquisition and Management at the Fire Island National

Seashore, GAO/CED-81-78 (May 8, 1981).

1. The Fifth Amendment Any discussion of property acquisition by the United States must 

start with the “eminent domain clause” of the Fifth 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.”

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., 

Hanson Lumber Co. v. United States, 261 U.S. 581, 587 (1923); United

States v. Gettysburg Electric Ry. Co., 160 U.S. 668, 681 (1896); United

States v. Jones, 109 U.S. 513, 518 (1883). More recently, the Court 

noted in United States v. Carmack, 329 U.S. 230, 241-242 (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.8

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 under the Federal Enclave heading later in 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 consent are 

16 U.S.C. §§ 515 (national forest system acquisitions under the 

Weeks Act) and 715f (Migratory Bird Conservation Act).9

8

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 will be discussed later.

9

Cases discussing and applying the requirement of the Migratory Bird Conservation 

Act include United States v. 1,216.83 Acres, 573 F.2d 1054 (9th Cir. 1978); Swan Lake

Hunting Club v. United States, 381 F.2d 238 (5th Cir. 1967).
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Issues arising under the Eminent Domain Clause can be grouped 

under three major headings:

(1) What is a “taking” for purposes of the Fifth Amendment? The 

concept of “taking” is not limited to acts which result in the transfer 

of title or possession, but has been construed to embrace a wide 

variety of government actions. Examples noted, with case citations, 

in our discussion of inverse condemnation claims in Chapter 12 

include permanent flooding, the taking of “air easements” (noise 

from overhead flights), and regulatory taking. Regardless of the type 

of taking involved, the purpose of the eminent domain clause of the 

Fifth Amendment is “to bar 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.” Armstrong v. United

States, 364 U.S. 40, 49 (1960), quoted in Connolly v. Pension Benefit

Guaranty Corporation, 475 U.S. 211, 227 (1986).

(2) 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 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).

(3) What constitutes “just compensation”? As a general proposition, 

just compensation 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, December 8, 1978.

The federal power of eminent domain extends to Indian tribal lands. 

E.g., United States v. 21,250 Acres of Land in Cattaraugus County, 

161 F. Supp. 376 (W.D. N.Y. 1957). It also extends to land owned by 

states. Oklahoma ex rel. Phillips v. Atkinson, 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, 469 U.S. 24, 31 
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(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.10

2. Federal Land Acquisition 

Policy

The Uniform Relocation Assistance and Real Property Acquisition 

Policies Act of 1970, Public Law 91-646, became law on January 2, 

1971, and was amended in 1987. The major portion of the law, Title 

II, deals with relocation assistance and will be covered later in 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, 42 U.S.C. § 4651. It 

begins by stating four congressional objectives: (1) to encourage 

and expedite acquisition by voluntary rather than involuntary 

means, 

(2) to avoid litigation and thereby reduce congestion in the courts 

(ha!), (3) to assure consistent treatment of property owners, and 

(4) to promote public confidence in federal land acquisition 

practices.

Section 301 then goes on to state 10 congressional “policies,” 

designated as subsections (1) through (10). They are:

(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, October 11, 1973.

10A useful starting point for further exploration is Robert Meltz, Library of Congress, 

When the United States Takes Property: Legal Principles, CRS No. 91-339 A (1991).
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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.

(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,” undefined in the statute 

but set at $2,500 or less in the governmentwide regulations 

published by the Department of Transportation. 

49 C.F.R. § 24.102(c)(2).

To the extent appropriate, appraisals should follow the Uniform

Appraisal Standards for Federal Land Acquisitions published by the 

Interagency Land Acquisition Conference (Washington, D.C. U.S. 

Government Printing Office, 1973). Id. § 24.103(a).

(3) Subsection (3), dealing with the amount of compensation, 

includes several distinct points:

• The acquiring agency should establish the “just compensation” 

amount before the negotiations start.

• This amount should not be less than the agency’s approved

appraisal.11

• 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 

11What 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. No. 91-1656, 

at 23 (1970), reprinted in 1970 U.S.C.C.A.N. 5850, 5872.
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disregarded. (This, as we have seen, was a codification of existing 

case law. See the discussion of what constitutes “just 

compensation,” above.) 

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. 

No. 91-1656, at 22 (1970), reprinted at 1970 U.S.C.C.A.N. 5850, 

5871-72.

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, December 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, December 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 under the Wild and Scenic Rivers Act of 1968. 

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 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. No. 91-1656 at 23; B-193234, December 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 
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compensation. 58 Comp. Gen. 559 (1979). A case discussing 

application of several of the policy elements to the acquisition of 

scenic easements under the Wild and Scenic Rivers Act is B-179059, 

October 11, 1973.

(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 in 

with the court, in the case of a condemnation.

(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.

(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.

(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.

(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.

(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 “uneconomic remnant” as a remaining interest which the 

acquiring agency determines “has little or no value or utility to the 

owner.”

(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,” 
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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 acquisition 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); 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).12 If the 

statute did not create rights enforceable in court, it followed that 

GAO could not consider monetary former claims for alleged 

violations of section 4651 under its former claims settlement 

authority. B-215591, September 5, 1984.

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 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” 

12See also Paramount Farms, Inc. v. Morton, 527 F.2d 1301 (7th Cir. 1975); United

States v. 416.81 Acres, 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. HUD, 347 F. Supp. 555 (E.D. Pa. 1972); Will-Tex Plastics

Manufacturing, Inc. v. HUD, 346 F. Supp. 654 (E.D. Pa. 1972), aff’d mem., 478 F.2d 

1399 (3d Cir. 1973).
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that it will “be guided, to the greatest extent practicable under State 

law,” by the policies of section 4651.13

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 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 v. Brinegar, cited 

above. 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 v. United States, 424 F. Supp.

at 264-265; Nall Motors v. Iowa City, 410 F. Supp. at 114-115.

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 (3 Stat. 568), 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.”

13Title II of the Uniform Relocation Act contains a similar provision with the 

“satisfactory assurances” language. That provision is noted later in this chapter 

with case citations to the effect that a satisfactory assurance does not mean a 

guarantee.
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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. § 2676(a), applicable to the 

military departments.

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, 

September 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, February 26, 1946; A-88061, August 3, 1937; A-31494, 

May 8, 1930; A-24745, October 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.

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 
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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 under the Federal 

Property and Administrative Services Act of 1949. 38 Comp. 

Gen. 782 (1959). See also B-71849, January 7, 1948, reaching the 

same conclusion under an earlier statute that was superseded by the 

1949 act. The Attorney General has also concluded that 41 U.S.C. 

§ 14 does not apply to authorized interagency transfers. 40 Op. Att’y 

Gen. 483 (1946).

The statute has also been held inapplicable to transactions in the 

nature of “unvouchered expenditures.” 9 Comp. Dec. 805 (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 resort to 

security. 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).

Citing Neilson v. Lagow, 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 
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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 land and of 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, February 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 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 
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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).14 The prohibition has not been 

applied to options given without monetary consideration. See, e.g., 

B-103967, July 7, 1972; A-59458, January 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 in 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 

aggregate cost of $500,000 per year. The option must be for a 

minimum of two years, and the option cost must be credited toward 

the purchase price.

• The General Services Administration receives the authority in 

annual appropriation acts by virtue of language making the Federal 

Buildings Fund appropriation available for “acquisition of options to 

14The rationale of the decisions is not consistent. 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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purchase buildings and sites.” E.g., Pub. L. 

No. 103-329, 108 Stat. 2382, 2397 (1994) (fiscal year 1995).

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, November 10, 1958, amplifying 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 from 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, March 7, 1956; 

A-51705, November 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 

construction carries with it the implied authority to acquire land, the 

Comptroller General stated the test as follows in B-115456, July 16, 

1953:
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“[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.”

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” (id. 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. 1934), cert. denied, 293 U.S. 620; Burns v.

United States, 160 F. 631 (2d Cir. 1908); 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 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 U.S. Code which may be 

agencywide or limited to a particular bureau or program. Examples 

are:
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• 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. §§ 602, 603(a), 604(a): authorize General Services 

Administration to acquire land for purposes of Public Buildings Act 

of 1959;

• 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, July 16, 1976; B-173832, 

August 1, 1975. 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 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 
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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. § 2672a. The land acquisition needs of the 

military departments are usually addressed in the annual Military 

Construction Authorization Acts. However, if land is needed in the 

interest of national defense and to maintain the “operation integrity” 

of a military installation, and the urgency of the situation does not 

permit inclusion in the next authorization act, 10 U.S.C. § 2672a 

authorizes military departments to use military construction 

appropriations to acquire the land, with advance written notice to 

the pertinent congressional oversight committees. 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 

$200,000. 10 U.S.C. §§ 2672, 2673.

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 
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$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 (1929) (an earlier version of the statute) and B-125390, 

October 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: 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.” B-115456, 

July, 16, 1953.

• 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. § 490(a)(12): land acquisition by the General Services 

Administration under the Federal Property and Administrative 

Services Act of 1949. 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 authority, 

acquisitions would still require available appropriations. 

B-137755-O.M., December 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 
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(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., 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., to be 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, 

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. Bruckner, 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, 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 471-472.

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).

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. 
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Gen. 320 (1931); A-34970, February 20, 1931; A-25156, December 15, 

1928. In addition, the Attorney General will probably not approve 

the title. See Justice Department regulations quoted at 6 Op. Off. 

Legal Counsel 431, 435-36 (1982) and 3 Op. Off. Legal Counsel 337, 

339 (1979). Congress can, of course, 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, August 30, 1983 (covenant to pay homeowners’ 

association assessment).15

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 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 

15This 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. Regulations of the Attorney General

Promulgated in Accordance With the Provisions of Public Law 91-393, § 5(d) (1970).
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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 (2d 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.

16

16Burns 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 “dictum,” 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 person you bought it from 

actually owned it. Suppose he didn’t, or suppose there were “clouds” 

on the title you didn’t 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 seller, assuming you could 

catch him and assuming he 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 aren’t about to lend you money unless they’re 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 doesn’t take out mortgages. Nevertheless, the 

government would indeed look stupid if it bought land from 

someone who didn’t 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. § 255. 

The statute consists of unnumbered paragraphs rather than 

subsections. The first two paragraphs are worth quoting:

“Unless the Attorney General gives prior written approval of the sufficiency of the 

title to land for the purpose for which the property is being acquired by the United 

States, public money may not be expended for the purchase of the land or any 

interest therein.

“The Attorney General may delegate his responsibility under this section to other 

departments and agencies, subject to his general supervision and in accordance 

with regulations promulgated by him.”

The third paragraph provides that any agency which has been 

delegated title approval authority may still seek the assistance of, or 

request an opinion from, the Attorney General.
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As with 41 U.S.C. § 14, the cases involving 40 U.S.C. § 255 tend to be 

older ones. 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. § 255 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.17 Thus, as far as the “accounting officers” are concerned, 

the Attorney General’s opinion on the sufficiency of title under 

40 U.S.C. § 255 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. § 255.

Prior to 1970, 40 U.S.C. § 255 was worded in terms of the purchase 

of land for the purpose of erecting public buildings. 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, 

October 1, 1948; 39 Op. Att’y Gen. 73 (1937). So broad was this 

construction that early cases often stated the following general 

propositions:

17Within the Department of Justice, the implementation of 40 U.S.C. § 255 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 (1970). See 6 Op. Off. Legal Counsel 431 (1982);

3 Op. Off. Legal Counsel 337 (1979).
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• 40 U.S.C. § 255 applies “to all land purchased by the United States 

for whatever purpose.” 1 Comp. Gen. 625, 626 (1922); 9 Comp. 

Gen. 421, 422 (1930). Both decisions cite 28 Op. Att’y Gen. 413 

(1910). See also 28 Op. Att’y Gen. 463 (1910).

• 40 U.S.C. § 255 “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 1 Comp. Gen. 625, 626 and 9 Comp. Gen. 421, 422.

A 1970 revision of 40 U.S.C. § 255, Pub. L. No. 91-393, 84 Stat. 835 

(1970), removed any doubt over the validity of these broad 

statements. The statute now refers simply to “the purchase of the 

land or any interest therein.” The current view therefore remains 

that 40 U.S.C. § 255 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. § 255 has been 

applied to a wide variety of situations. Examples are:

• Acquisitions under title III of the Bankhead-Jones Farm Tenant Act. 

18 Comp. Gen. 727 (1939) (containing an extensive review of prior 

opinions of the Attorney General); 18 Comp. Gen. 372 (1938).

• Acquisitions under the Migratory Bird Conservation Act. 

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 by the Department of Energy of a “servitude” for the 

Strategic Petroleum Reserve under the Energy Policy and 

Conservation Act. 3 Op. Off. Legal Counsel 337 (1979).
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The statute has been held applicable to purchases for nominal 

consideration,18 to acquisition by donation,19 and to acquisition by 

exercise of a purchase option.20 One situation in which 40 U.S.C. 

§ 255 has been found not applicable is monetary contributions by 

the Department of Defense for common-use NATO facilities 

financed under multilateral cost-sharing agreements. B-114107, 

April 27, 1953.

A number of early decisions concluded that 40 U.S.C. § 255 did not 

apply where an agency had specific authority to acquire land by 

purchase or condemnation. An example was the Reclamation Act of 

1902. 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, December 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 this chapter, is that, since 1888, 

every agency with statutory authority to acquire land by purchase is 

also authorized to resort to condemnation. Id. at 744.21 

Subsequently, the Attorney General determined specifically that 

acquisitions under the Reclamation Act were subject to 40 U.S.C. 

§ 255. See B-80025, October 1, 1948.

Prior to the 1970 revision, 40 U.S.C. § 255 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, 

1839 Op. Att’y Gen. 99 (1937); 15 Comp. Gen. 539 (1935).

1936 Comp. Gen. 616 (1957); 5 Comp. Dec. 682, 684 (1899).

201 Comp. Gen. 752 (1922); 1 Comp. Gen. 625 (1922).

21A 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. The decision whether to purchase or condemn is no longer supposed to be 

purely discretionary. 
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e.g., 21 Comp. Gen. 125 (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.22

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 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 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, October 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. 

§ 255.

Congress in a few instances has provided exceptions from 40 U.S.C. 

§ 255. See, for example, 42 U.S.C. § 1502(b) relating to defense 

housing. Where 40 U.S.C. § 255 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, 

22There 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. Second, a provision, formerly found at 40 U.S.C. § 256, 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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payment would 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 20th 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 40 U.S.C. § 255 to authorize the Attorney 

General to accept certificates of title as satisfactory title evidence. 

The statute was amended again in 1940 to permit acceptance of any 

other evidence which the Attorney General deems satisfactory. 

When 40 U.S.C. § 255 was revised in 1970, 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), reprinted in 1970 U.S.C.A.N. 3805, 3809. Thus, although the 

abstract of title is still the document from which other forms of title 

evidence spring, the typical government attorney these days seldom 

sees one.23 The point to note is that older cases, to the extent they 

23The Justice Department has published a booklet entitled “Standards for the 

Preparation of Title Evidence in Land Acquisitions by the United States” (1970), 

intended to apply both to the Justice Department and to agencies which have been 

delegated title approval responsibility. A 1992 supplement presents and discusses 

the title insurance policy adopted in 1991 by the Justice Department and the 

American Land Title Association.
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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, December 30, 1931;24

A-39589, January 29, 1932. See also 14 Comp. Gen. 318 (1934).

c. Title Evidence Expenses (1) Purchase

The fourth paragraph of 40 U.S.C. § 255 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.”

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. § 255 was originally enacted in 

1841, 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 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 

24As noted earlier under the Title Approval heading, this decision has been 

repudiated to the extent it found 40 U.S.C. § 255 not applicable. However, it remains 

valid for the point cited in the text. 
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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. § 255 to land acquisition appropriations 

was added in 1940 (54 Stat. 1083, 1084). By then, the rule of 3 Comp. 

Dec. 216 had become established beyond dispute.25 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. § 255 does not apply. 25 Comp. Dec. 195 

(1918).

Land acquisition appropriations are available exclusively. General 

operating appropriations may not be used. A-33604, October 11, 

1930; A-33604, November 14, 1930 (reconsideration).

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 (75 Stat. 

577).

(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, 

September 20, 1938; A-47693, March 31, 1933; A-26824, April 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, cited above.

25Some of the cases are 8 Comp. Gen. 308 (1928); 3 Comp. Gen. 569 (1924); 9 Comp. 

Dec. 569 (1903); A-97769, September 20, 1938; A-47693, March 31, 1933; A-39589, 

December 30, 1931; A-26824, April 25, 1929. 
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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, April 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).26 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 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. 

§ 255 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 

26See also 9 Comp. Dec. 569 (1903); 3 Comp. Dec. 216 (1896); B-142862, June 21, 

1960; B-98346, October 9, 1950; A-47693, March 31, 1933; A-39589, December 30, 

1931.
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the acquisition (see B-55181, February 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 the fourth paragraph of 40 U.S.C. § 255, 

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. 23 Comp. Dec. 53, 56 (1916); 21 Comp. 

Gen. 744, 748 (1942). 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, we reviewed federal land 

acquisition policy under the Uniform Relocation Assistance and 

Real Property Acquisition Policies Act of 1970. 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, unless Congress has expressly deleted 

the relevant portion of the agency’s budget request, 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.

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 
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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.27 To do this, an agency 

needs statutory authority (41 U.S.C. § 14), an available 

appropriation, and title approval (40 U.S.C. § 255). 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).

Nothing prohibits the government from purchasing property 

encumbered by liens. 12 Comp. Dec. 691, 697 (1906). 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. 353 (1862).

A question applicable to government acquisitions as well as private 

transactions is who bears the risk of loss if the property is damaged 

27For 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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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. E.g., 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. E.g., 

Long v. Keller, 163 Cal. Rptr. 532 (Cal. Ct. App. 1980). 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). Other states place the risk on the seller. 

E.g., Laurin v. DeCarolis Construction Co., 363 N.E.2d 675 (Mass. 

1977). 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-137673, 

October 31, 1958.

The consideration specified in the deed is prima facie evidence of 

the agreed-upon purchase price. However, this can be overcome by 

“clear and convincing” evidence to the contrary, in which event it 

may be possible to consider a claim for an additional amount. 

7 Comp. Gen. 107 (1927). See also 4 Comp. Gen. 21 (1924).
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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). 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).

The power of eminent domain is vested in the legislative branch. 

Congress may exercise it directly, or may delegate it to the executive 

branch to be exercised in any manner that does not violate the 

Constitution. E.g., 2,953.15 Acres v. United States, 350 F.2d 356 

(5th Cir. 1965).

An executive agency exercises the delegated power of eminent 

domain by what is called “condemnation.” There are two types of 

condemnation, direct and inverse. A direct condemnation is a 

judicial action brought by the condemning authority, such as the 

United States, in the exercise of its power of eminent domain. 

United States v. Clarke, 445 U.S. 253, 255 (1980). There are two 

major forms of direct condemnation, declaration of taking and 

“complaint only.” Inverse condemnation refers to a wide variety of 

claims for “just compensation” under the Fifth Amendment. About 

the only thing that inverse condemnation claims necessarily have in 

common is that they reflect a determination that some action by the 

government has sufficiently infringed upon a private property right 

so as to create a right to “just compensation.” It differs from direct 

condemnation in that the government did not intend to take the 

property. The concepts and case law for both types are discussed 

below in greater detail. Whichever form is used, condemnation 

always involves a court proceeding. There is no such thing as 

administrative condemnation.

Condemnation actions are brought 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, Federal Rules of Civil 

Procedure. The United States is the plaintiff.

Whichever form of condemnation is used, cost limitations in the 

authorizing legislation or appropriation do not affect either the 

authority to condemn or the judicial determination of just 
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compensation. Albert Hanson Lumber Co. v. United States, 261 U.S. 

581, 586 (1923); 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). (The 6th Circuit 

case involved a declaration of taking; Hanson Lumber and 

Shoemaker predated the Declaration of Taking Act.)

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, 

March 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) Sources of authority

A question that was once open to some debate was whether 

statutory authority to acquire land by purchase was sufficient to 

trigger the government’s inherent eminent domain power, or 

whether it had to specify condemnation as well as purchase. See, 

e.g., Kohl v. United States, 91 U.S. 367, 374 (1875). To remove any 

doubt, Congress enacted a statute in 1888, sometimes called the 

General Condemnation Act of 1888 and now found at 40 U.S.C. 

§ 257, which authorizes any federal agency with authority to 

purchase land to use condemnation also. It provides:

“In every case in which the Secretary of the Treasury or any other officer of the 

Government has been, or hereafter shall be, authorized to procure real estate for 

the erection of a public building or for other public uses, he may acquire the same 

for the United States by condemnation, under judicial process, whenever in his 

opinion it is necessary or advantageous to the Government to do so . . . .”

Note that 40 U.S.C. § 257 is not an independent grant of land 

acquisition authority. That must exist elsewhere. If you have 

statutory authority to purchase land, 40 U.S.C. § 257 supplements it 

and permits you to use condemnation. Carmack, 329 U.S. at 235; 

Hanson Lumber Co. v. United States, 261 U.S. 581, 587 (1923); 

19 Comp. Gen. 739, 744 (1940). The constitutionality of 40 U.S.C. 

§ 257 has long been settled. Chappell v. United States, 160 U.S. 499 

(1896).

The significance of 40 U.S.C. § 257 is that it makes no difference 

whether the legislation authorizing a particular acquisition says 
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“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. § 257. Of course, 

Congress is always free to limit an acquisition statute to voluntary 

purchase, in which event 40 U.S.C. § 257 would be subordinated. 

United States v. 16.92 Acres, 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 

(Army Corps of Engineers, river and harbor improvements), and 

43 U.S.C. § 421 (Reclamation Act of 1902). Although there is little 

case law, these statutes stand side-by-side with 40 U.S.C. § 257. 

Hence, an agency with overlapping statutes can elect which one to 

proceed under in a given case. See Hanson Lumber Co. v. United

States, 261 U.S. 581 (1923); Chappell v. United States, 81 F. 764 

(4th Cir. 1897); United States v. 80 Acres, 26 F. Supp. 315, 321 (E.D. 

Ill. 1939); In re Military Training Camp in Prince George County, Va., 

260 F. 986 (E.D. Va. 1919); B-98346, October 9, 1950. (Hanson and 

B-98346 involve the river and 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.

§ 257.

(3) 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). 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).
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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 destruction.” S. Rep. No. 93-875, 

at 5 (1974), reprinted in 1974 U.S.C.C.A.N. 5554, 5558, and quoted in 

B-125035-O.M., April 21, 1976.

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. 1991), cert. denied, 502 U.S. 952, 

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.

(4) Declaration of Taking Act

The Declaration of Taking Act, enacted in 1931 and found at 

40 U.S.C. §§ 258a-258e,28 provides a procedure whereby the United 

States can get immediate title to property it needs to condemn. 

Under the Act, the United States may file, either with the original 

petition or at any time before judgment, a “declaration of taking.” 

The contents of the declaration are set out in 40 U.S.C. § 258a. Along 

with the declaration, the acquiring agency must deposit its 

estimated just compensation with the court. Under this statute, once 

28The 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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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.

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. 

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); Rule 

71A(j), Federal Rules of Civil Procedure.

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. § 258e. 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 in several cases. E.g., Travis v. United States, 287 F.2d 916 

(Ct. Cl. 1961), cert. denied, 368 U.S. 824.
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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, 639 F.2d 

299, 303 (5th Cir. 1981), cert. denied, 454 U.S. 828.

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, 327 F.2d 630 (3d 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, 

December 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 re-obligated after expiration of the 

original period of availability to acquire a tract not encompassed by 

the original obligation. A-88947, October 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. § 258c:

“Action under section 258a of this title irrevocably committing the United States to 

the payment of the ultimate award shall not be taken unless the chief of the 

executive department or agency or bureau of the Government empowered to 

acquire the land shall be of the opinion that the ultimate award probably will be 

within any limits prescribed by Congress 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 had obtained three appraisals, all of which were 
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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 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 over-obligation.29

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. § 258c prohibits the initiation of Declaration of Taking 

Act proceedings when the agency knows or believes that the award 

will exceed an applicable ceiling.30 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. § 258c, as was clearly the case in the 1931 decision 

discussed above, is an important factor in evaluating compliance 

with the Antideficiency Act. In other words, compliance with 

section 258c should insulate an agency against Antideficiency Act 

29There are statements in two later decisions, one flatly stating and the other 

strongly implying, that the Antideficiency Act is violated by an over-obligation 

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.

30A 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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violations, whereas an agency which violates section 258c should 

not be so insulated.

This in turn leads to the question of what constitutes compliance 

with 40 U.S.C. § 258c, 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. 1958), 

cert. denied, sub nom. Certain Interests in Property v. United States, 

358 U.S. 908. One court has gone so far as to suggest that 40 U.S.C. 

§ 258c is satisfied by virtue of the acquiring agency’s request to the 

Attorney General to initiate condemnation proceedings. United

States v. 40.75 Acres, 76 F. Supp. 239, 245-246 (N.D. Ill. 1948). 

However, the courts are not unanimous. The Second Circuit has 

assumed, for the sake of argument, that it can act when the 

government’s estimate is made in bad faith. United States v. 44.00

Acres, 234 F.2d 410, 415 (2d Cir. 1956), cert. denied, sub nom. 

Odenbach v. United States, 352 U.S. 916. 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, 266 F.2d 741 (4th Cir. 1959).

Whether the enactment of the Uniform Relocation Act in 1970, 

which seems to require good faith (see Federal Land Acquisition 

Policy heading earlier in this chapter), would make any difference is 

perhaps debatable. In any event, the issue in all of these cases was 

whether a court could attack the validity of a declaration of taking, 

which is very different from an Antideficiency Act question. An 

Antideficiency Act violation could not invalidate a declaration of 

taking because, if for no other reason, a statute cannot impede the 

constitutional right to just compensation.

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, 135 F.2d 878, 880 (7th Cir. 1943). Previous 

interests “are obliterated.” United States v. 25.936 Acres, 153 F.2d 

277, 279 (3d 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 
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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, 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 (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, October 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 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, April 18, 1952.31 

(5) “Complaint only” condemnation

The second way a federal agency can condemn property directly is 

by filing a complaint without a declaration of taking. This is 

sometimes called a “complaint only” or “straight” condemnation. A 

“complaint only” condemnation is different from a Declaration of 

Taking Act proceeding in several essential respects: there is no 

deposit with the court, no immediate vesting of title, and no 

irrevocable commitment on the part of the United States to pay the 

award.

In a “complaint only” condemnation, 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 

31In 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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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.32

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, 616 F. Supp. 1235, 1251 (D. S.C. 1985).

It has been held that, in a “complaint only” proceeding under the 

General Condemnation Act (40 U.S.C. § 257), 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. 1943). This follows from 

principles of sovereign immunity and the requirements of the 

appropriations clause. Thus, under section 254, “an award in 

condemnation is [merely] an offer subject to acceptance by the 

[United States].” Id.

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, November 22, 1924. However, the status of funding is not 

wholly irrelevant. The United States does not have an indefinite 

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 

32The summary in the text has been distilled from a number of cases: Kirby Forest

Industries v. United States, 467 U.S. 1 (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, 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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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 acts 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 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 
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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 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.33 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.34

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 found in the context of some form of regulatory taking. E.g., Tabb

Lakes, Ltd. v. United States, 10 F.3d 796, 800 (Fed. Cir. 1993). In this 

connection, Executive Order No. 12,630, March 15, 1988, instructs 

executive agencies to carefully evaluate their activities to prevent 

unnecessary takings.

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 

33An 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 GAO’s position, 

discussed in Chapter 14, 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.

34In 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. 691-692. In effect, the agent 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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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, January 15, 1935. Decision 

A-59458 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 . . . .”

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. 664, 668 (1938); 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. The reason is that acceptance 

of the option in these circumstances constitutes a contract. 

56 Comp. Gen. 351, 352 (1977); 17 Comp. Gen. 664, 668 (1938); 

A-76119, July 3, 1936; A-59458, January 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 four 

years, as long as the full amount of the purchase price was obligated 

in the year the purchase agreement was executed.35

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 

(1954); 17 Comp. Gen. 664, 668 (1938); 17 Comp. Gen. 631 (1938); 

35At 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. 
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17 Comp. Gen. 111 (1937).36 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, 

February 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 de-obligate 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 

(1938). This decision was “amplified” by 19 Comp. Gen. 944 (1940), 

to emphasize that the administrative choice is not absolute. The 

agency has the election 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 

36A 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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the condemnation request is relevant but not conclusive. Id. 

at 947-948.37 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 2001 

money to acquire a piece of property. Before the end of fiscal year 

2001, the agency exercises an option or enters into a formal 

purchase contract for $1,000,000, and records the obligation against 

its fiscal year 2001 appropriation. In fiscal year 2002, 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 

de-obligate the fiscal year 2001 money and record a new obligation 

against its fiscal year 2002 land acquisition appropriation (assuming 

it has one). If the agency retains the 2001 obligation and the 

condemnation award turns out to be $1,200,000, it may charge the 

$200,000 “deficiency” to its 2002 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. 418, 423 (1955); 34 Comp. Gen. 67 (1954). 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 

contingent upon the making of adequate provision for the payment 

of just compensation. See 1 Comp. Gen. 735 (1922).

37Unreasonable 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, 45 F. Supp. 535 (W.D. Ark. 1942), aff’d sub

nom. United States v. Stott, 140 F.2d 941 (8th Cir. 1944). See also United States v.

2,974.49 Acres, 308 F.2d 641 (4th Cir. 1962); United States v. 74.12 Acres, 81 F.R.D. 12 

(D. Mass. 1978). 
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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.38 E.g., United States v. Oregon

Ry. & Nav. 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—the cost of procuring evidence of title. The Uniform 

Relocation Assistance and Real Property Acquisition Policies Act of 

1970 provides for several others. Section 303 of the URA, 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 authorizes “recording fees, 

transfer taxes, and similar expenses incidental to conveying such 

real property to the United States.” Recording fees had long been 

recognized as an authorized expense, chargeable to the 

appropriation from which the purchase price is paid. A-33604, 

October 11, 1930. A state tax on gain from the sale of property, in the 

38If, 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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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).

Subsection (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).

Subsection (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, April 7, 1952; B-46548, January 26, 1945; B-21817, 

February 12, 1942.
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The governmentwide regulations issued by the Department of 

Transportation instruct agencies to, whenever feasible, pay the 

items listed 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 has, 

however, 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 judicial portion of 

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 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). The primary effect of 42 U.S.C. § 4654(a) is to assure that 

the landowner in a “complaint only” condemnation is not left 
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“holding the bag” if the award turns out to be more than the agency 

is willing or able to pay.

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 Claims applies in making awards 

under subsection (c) are discussed in Foster v. United States, 

3 Cl. Ct. 738 (1983). The court has been critical of subsection (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).39

Subsection (a) of 42 U.S.C. § 4654 applies only to real property. 

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. 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, 840-841 (Ct. 

Cl. 1980); Hedstrom Lumber Co. v. United States, 7 Cl. Ct. 16, 34 

(1984).

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 28 U.S.C. § 2412(d), the “judicial half” of the Equal 

Access to Justice Act.

During the “first life” of the Equal Access to Justice Act (1981-1984), 

the courts were divided over whether condemnation cases were 

covered, with the majority holding that they were not. The 

“reincarnated” version enacted in 1985 makes it clear that 

condemnation cases are intended to be covered. For a landowner to 

39Cloverport 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).
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be entitled to fees and expenses under 28 U.S.C. § 2412(d), the 

following tests must be met:

• The landowner must meet the eligibility criteria of 28 U.S.C. 

§ 2412(d)(2)(B).

• 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

In Chapter 17, we discuss in more detail the treatment of “litigation 

expenses”—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 proceedings40 and actions to 

quiet title.41 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.

40E.g., 18 Comp. Gen. 592, 593-594 (1939); 12 Comp. Dec. 304 (1905); 10 Comp. 

Dec. 538 (1904); 9 Comp. Dec. 793 (1903).

4132 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, Federal Rules of 

Evidence, 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), Federal Rules of Civil Procedure, 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 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 
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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. Differences in

Administration of the Uniform Relocation Assistance and Real

Property Acquisition Policies Act of 1970, B-148044, 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 (URA), Pub. L. No. 91-646, 84 Stat. 1894 (1971). 

The law was amended substantially in 1987 by the Uniform 

Relocation Act Amendments of 1987, Pub. L. No. 100-17, title IV, 

101 Stat. 132, 246, which went into effect in April 1989.

The URA consists of three titles. Title I (42 U.S.C. §§ 4601-4604) 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 this chapter.
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Title II (42 U.S.C. §§ 4621-4638) is entitled “Uniform Relocation 

Assistance.”42 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. Subsection (b), 42 U.S.C. § 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)—advisory services, and

• Section 206 (42 U.S.C. § 4626)—housing replacement by federal 

agency as “last resort.”

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.

42Much 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 ed., 

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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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.43 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). 51 Fed. Reg. 7000 (February 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(l).

2. The Threshold 

Determination: Meaning of 

“Displaced Person”

Section 101(6) of the 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 

43See Changes Needed in the Relocation Act to Achieve More Uniform Treatment of

Persons Displaced by Federal Programs, GAO/GGD-78-6 (March 8, 1978); 

Differences in Administration of the Uniform Relocation Assistance and Real

Property Acquisition Policies Act of 1970, B-148044, June 7, 1973.
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“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 situation. 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 in recognition of the fact that the effect on 

the person forced to relocate is the same.

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.

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). 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).
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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 lease-construction projects are intended to be 

covered. H.R. Rep. No. 91-1656, 4-5 (1970), reprinted in

1970 U.S.C.C.A.N. 5850.44 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,45 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, Div. v. Dept. of Highways, 441 F. Supp. 866 

(W.D. La. 1977), aff’d per curiam, sub nom. Beaird-Poulan, Inc. v.

Dept. of Highways, 616 F.2d 255 (5th Cir. 1980), cert. denied, 449 U.S. 

971 (1981), 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 

44This 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.

45Under 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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substantially expand its physical plant due to increased 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 

Beaird-Poulan 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. HUD, 441 U.S. 39, 59 (1979); 

H.R. Rep. No. 91-1656, at 4.46

The acquisition or notice must be “for” a federal or federally funded 

program or project. In Alexander v. HUD, 441 U.S. 39 (1979), the 

Supreme Court held that, when 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. Id. at 63 and 65. Similar lower court decisions 

are Caramico v. Secretary of Housing and Urban Development, 

509 F.2d 694 (2d 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. 

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 

(3d Cir. 1980). However, there are situations in which a move 

without a written notice and prior to actual acquisition will qualify. 

46These 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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In a 1975 decision, for example, GAO concluded that a person who 

moves after the government has made a firm purchase 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 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. When there is no written notice of intent 

to acquire, initiation of negotiations means delivery of the agency’s 

initial written offer. 49 C.F.R. §§ 24.2(g)(1)(i), 24.2(k).

The case of Lathan v. Volpe, 455 F.2d 1111 (9th Cir. 1972), illustrates 

a different type of “acquisition.” The Department of Transportation 

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. HUD, 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 
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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 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 pre1987 law, it is therefore necessary to apply the revised definitions 

and the appropriate version of the DOT regulations. Conway v.

Harris, 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 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), reprinted at 1987 U.S.C.C.A.N. 122, 

230.

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 Co. v. Weinberger, 381 F. Supp. 410 (D. Mass. 1974), aff’d, 

513 F.2d 835 (1st Cir. 1975), 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 
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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. Pietroniro v. Borough of Oceanport, 764 F.2d 976, 

980 (3d Cir. 1985), cert. denied, 474 U.S. 1020 (1985).

The Comptroller General considered an unusual variation in 

B-213033, August 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 services—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).
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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, March 5, 1975, that the nonresident owner of an 

apartment building could be considered a “displaced person” even 

with no 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). The DOT regulations also seem to require 

that there be some personal property to move, but they do not 

attempt to specify how much. 49 C.F.R. § 24.306(a)(1).

3. Types and Payment of 

Benefits

a. Moving and Related Expenses Section 202 of the 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. Id. The DOT regulations provide for the allowance 

to be determined “according to the applicable schedule approved by 
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the Federal Highway Administration.” 49 C.F.R. § 24.302. The 

Federal Highway Administration derives its schedule from data 

submitted by the various state highway agencies and publishes the 

schedule as a Notice in the Federal Register about once every three 

or four years. The most recent schedule (through the date of this 

chapter’s publication) was published in 61 Fed. Reg. 65425 

(December 12, 1996).

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(g)(2)(ii); 

B-148044, January 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), he 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,47 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. §§ 24.303 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 

1970 legislative history points out, there may be situations where the 

47The regulations limit this item to $1,000. 49 C.F.R. § 24.303(a)(13). There is no 

comparable allowance in any amount for residential displacements. 49 C.F.R. 

§ 24.305(i) (expressly excluding expenses of searching for a replacement dwelling).
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property is not suitable at the new location, or where moving it 

would be impractical or uneconomical. H. R. Rep. No. 91-1656, 6-7 

(1970), reprinted in 1970 U.S.C.C.A.N. 5850.

Alternatively, the person may elect to receive a fixed payment under 

42 U.S.C. § 4622(c), determined in accordance with the DOT 

regulations, of not less than $1,000 nor more than $20,000. Under 

49 C.F.R. § 24.306(a), in order for a business to receive a fixed 

payment under subsection (c) of the statute, the agency must 

determine, among other things, that:

• 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.

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. 

§ 24.306(e), subject to the statutory maximum and minimum. For a 

nonprofit, the payment is based on “the average of two years annual 

gross revenues less administrative expenses.” 49 C.F.R. § 24.306(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 subsection (c) fixed payment as long as the required 

determinations could be made. B-148044, November 18, 1975. While 
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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 multi-family 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 in both capacities (H.R. Rep. 

No. 91-1656, supra, 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, 

March 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 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:
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• The difference, if any, between the acquisition cost (the eminent 

domain “fair market value” payment) and the reasonable cost of a 

comparable replacement dwelling.

• 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. The regulations provide guidance on computing the 

differential. See 49 C.F.R. § 24.401(d) and Appendix A to § 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.

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(k)(2).

In order to qualify for payment under section 4623(a)(1), the 

displaced person must purchase and occupy a replacement dwelling 

within one 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 one-year deadline for good cause. Id. Good cause 

generally means some event beyond the displaced person’s control. 

See 49 C.F.R. § 24.401(a)(2), Appendix 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, supra, at 8. An acquired 

dwelling is “owned” if the displaced person held fee title, a life 

estate, a land contract, a 99-year lease, or a lease including 

extension options with at least 50 years to run from the date of 

acquisition. 49 C.F.R. § 24.2(p)(1).

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, October 8, 1981 (internal memorandum) (same point 

under prior version of regulations). To promote uniformity, the law 

defines “comparable replacement dwelling” as a dwelling that is:
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“(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). 

The “decent, safe, and sanitary” standard is defined in 49 C.F.R.

§ 24.2(f). 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 247-248 (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 
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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 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 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, 12 (1970), reprinted in

1970 U.S.C.C.A.N. 5850. 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. Payment may be in a lump sum or 

in periodic installments, in the agency’s discretion. The regulations, 

49 C.F.R. § 24.402(b), prescribe the method of calculating the 
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amount of the benefit. The displaced person may, at his or her 

election, use the money as a down payment on the purchase of a 

“decent, safe, and sanitary replacement dwelling,” in which event 

the agency may, again in its discretion, 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, supra, 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.

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. Ninety-day home owners 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, Subpt. 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). Under the regulations, 

you compute benefits separately for the dwelling and the site, 

applying to each the appropriate provisions of the law and 

regulations depending on which is owned and which is rented. 

However, the total replacement housing payment may not exceed 

the ceiling applicable to the dwelling. 49 C.F.R. § 24.505(a).

c. Advisory Services Section 205 of the 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. 
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§ 4625(b)), and to short-term tenants who would not otherwise 

qualify as displaced persons (42 U.S.C. § 4625(f)). The advisory 

program was viewed as a “key element” of a successful relocation 

program. H.R. Rep. No. 91-1656, supra, at 13. Thus, the responsibility 

of an agency is not limited to merely paying appropriate benefits 

when claimed. There is an affirmative duty 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. § 4625(c)(4). This, said one court, “requires only 

assistance, not assistance guaranteeing a successful result.” 

American Dry Cleaners and Laundry, Inc. v. U.S. Department of

Transportation, 722 F.2d 70, 73 (4th Cir. 1983). Another court has 

noted that the existence of a file folder 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 (1977).

d. “Last Resort” Replacement 

Housing

The 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, 33 A.L.R. Fed. 9, 30 (1977). Under subsection (a), if a federal or 
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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, supra, at 15; 49 C.F.R. § 24.404(c)(1). Subsection (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 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.” 53 Fed. Reg. 27604 (July 21, 1988) (supplementary 

information statement on proposed uniform regulations).

An agency cannot require a displaced person to accept agencyprovided housing in lieu of applicable monetary payments (just 

compensation payment, if any, and supplemental payment under 

42 U.S.C. §§ 4623 or 4624). This can be done only if the displaced 

person agrees. H. R. Rep. No. 91-1656, supra, at 14-15; 49 C.F.R. 

§ 24.404(b).

Subsection (b) of 42 U.S.C. § 4626 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 [being] 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). Although its scope 

has yet to be judicially tested, this, especially in conjunction with the 
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statutory definition of “comparable replacement dwelling,” appears 

to create a substantive right of major importance.

The URA does not require that comparable replacement housing be 

located in the immediate neighborhood of the displacement 

housing, Mejia v. U.S. 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, 180-181 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. In light of the 1987 addition of the statutory definition 

of “comparable replacement dwelling,” one element of which is that 

the housing be in a location generally not less desirable with respect 

to the displaced person’s place of employment, the outer boundaries 

of this concept remain to be determined.

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); 49 C.F.R. § 24.404(c)(1)(viii). 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 ownership is not feasible is not legally 

precluded, although it is obviously an undesirable option and should 

not be encouraged.48 Recognizing that there is room for legitimate 

disagreement, GAO recommended congressional clarification, and 

reiterated its recommendation in its report entitled Changes Needed

in the Relocation Act to Achieve More Uniform Treatment of

Persons Displaced by Federal Programs, GAO/GGD-78-6 (March 8, 

1978).

48The 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. 
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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, 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. 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.

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 non-acquisition activity) is federally assisted. H.R. Rep. 

No. 91-1656, at 4 (1970) reprinted in 1970 U.S.C.C.A.N. 5850; Lake

Park Home Owners Association v. U.S. 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).

A 1976 decision, B-180812, March 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 
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required to provide relocation benefits to those displaced from any 

site which, 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 which 

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. 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; 49 C.F.R. § 24.4(a)(3) 

and Part 24, Subpt. G.

“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. 

42 U.S.C. § 4601(4); 49 C.F.R. § 24.2(j). Thus, if the only federal 

financial involvement is in the form of a guarantee or insurance, the 

URA does not apply regardless of who displaces whom from what. 

E.g., Dawson v. U.S. 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 “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. 
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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. 1979), cert. denied, 

444 U.S. 970; B-148044, December 10, 1973; B-130515-G.94, March 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. 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, supra, at 17. 

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 antiduplication 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).

Subsection (c) of 42 U.S.C. § 4631 required that grants and contracts 

with state agencies executed prior to the effective date of the URA 

be amended to include 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 
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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 

subsection (a) cost-sharing requirements. B-173957, September 7, 

1972.

f. Procedures and Payment The payment of benefits under the 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). Since displaced persons often 

tend to be lower-income individuals and families, this is as it should 

be. 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 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(g). 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 
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federal share of authorized relocation costs to a state agency. 

42 U.S.C. § 4631(c). Second, a displaced person may, in hardship 

cases and upon proper application, 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 URA applies to the utility the same as it applies to any 

other business entity. Norfolk Redevelopment and Housing

Authority v. Chesapeake and 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 
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location be made.” New Orleans Gas Light Co. v. Drainage Comm’n, 

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 expense.” Norfolk Redevelopment and Housing

Authority, 464 U.S. at 34 (citing and following New Orleans Gas Light

Co.).

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.” 

Id. at 331. 

Another early decision, A-38299, September 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 more recent 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. The 

relocation of utility lines is the exercise by the United States of its 

inherent regulatory authority over its property. The United States 
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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. Id. at 807.

If, under the common-law rule, the government can’t 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, September 8, 1931; land acquired by a 

federal agency for a specific project, 18 Comp. Gen. 806, cited 

above; and unreserved public land, B-11161, August 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, 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 

Federal Power Commission (FPC) under the Federal Power Act of 

1920, as amended, 16 U.S.C. ch. 12. 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, December 1, 1932. In a 1955 case, 

however, the FPC determined that, under the terms and conditions 
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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, April 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, unlike a license or a franchise, is generally viewed 

as creating a compensable interest in land. E.g., Artesian Water Co., 

330 A.2d at 440.49 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, December 2, 1940. See

also 42 Comp. Gen. 177 (1962) in which relocation costs were 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 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), 90 Stat. 

2743, 2793 (1976). 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 nonFLPMA lands, would appear to remain valid under FLPMA. In any 

49An 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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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 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 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 and Housing

Authority v. Chesapeake and 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.” Id. at 34. 

See also Consumers Power Co. v. Costle, 615 F.2d 1147 (6th Cir. 

1980).
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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 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 (49 C.F.R. § 24.307), 

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.” 54 Fed. Reg. 8923 (March 2, 1989) 

(Supplementary Information statement).

The regulations direct agencies which 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. § 24.307(c). For guidance in reaching 

agreement, agencies should follow the utility relocation regulations 

of the Federal Highway Administration, 23 C.F.R. Part 645, Subpt. A. 

See 49 C.F.R. App. A to § 24.307.
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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), reprinted at 1987 U.S.C.C.A.N. 122, 235.

(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 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 common-law 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, January 2, 1964; 

B-149833-O.M., June 24, 1963; B-149833-O.M., November 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 
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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, 

December 16, 1964, modified by B-154937, May 25, 1965.50

(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).

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, 

December 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., September 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 

50These 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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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;51

B-33911/B-62187, July 15, 1948. See also B-62187, December 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, 

November 29, 1956; B-5441, August 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 to the types of agreements authorized under statutes 

such as 33 U.S.C. § 701c-1 or 43 U.S.C. § 389. B-76531, September 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 

51This 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 the text.
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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 Comm’n, 302 U.S. 186, 197 (1937). 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 in essence displaces the 

state as 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. In between, as one study has reported, federal control “can 

and does vary to an almost infinite number of degrees.”52 During the 

last half of the 19th century and first half of the 20th, most land 

acquired by the United States was acquired with exclusive federal 

jurisdiction.53

52Jurisdiction Over Federal Areas Within the States, Report of the Interdepartmental 

Committee for the Study of Jurisdiction Over Federal Areas Within the States, 

Part I, at 2 (1956).

53Id. at 8-10.
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There are two ways in which the United States can acquire exclusive 

federal jurisdiction: consent and cession. The first method, consent, 

is provided in Article I, section 8, clause 17 of the Constitution, the 

so-called Jurisdiction Clause:

“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.” 

Dravo, 302 U.S. at 143; Silas Mason, 302 U.S. at 203. 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, 

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 RR. Co.

v. Lowe, 114 U.S. 525 (1885). Some years later, the Court emphasized 

that Clause 17 “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, 
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264 (1963); and United States v. Gliatta, 580 F.2d 156, 158 (5th Cir. 

1978), cert. denied, 439 U.S. 1048.54

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 Clause 17 was 

thought inapplicable, for example, acquisition by condemnation. See 

generally Fort Leavenworth RR. Co. v. Lowe, cited above. In more 

recent cases, however, the Supreme Court has said that “purchase” 

for purposes of Clause 17 includes condemnation. United States v.

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 Clause 

17. Humble Pipe Line Co. v. Waggonner, 376 U.S. 369 (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 Clause 17 is still relevant in 

determining which method must be used in some situations. For 

example, Clause 17 comes into play only where the land is being 

acquired for one of the purposes specified in Clause 17. Thus, Clause 

17 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 v. Yosemite Park &

Curry Co., 304 U.S. 518 (1938), the Supreme Court established that 

jurisdiction by cession is not limited to the purposes specified in 

Clause 17. 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 Clause 17 consent.

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 

54There 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 RR. Co. v. Lowe, 

114 U.S. 525, 526 (1885); State v. Galvan-Cardenas, 799 P.2d 19, 21 (Ariz. Ct. App. 

1990).
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federal land become a sanctuary for fugitives, and does not diminish 

the “exclusiveness.” Fort Leavenworth RR. Co., 114 U.S. at 533. See

also Cornman v. Dawson, 295 F. Supp. 654, 657 n.5 (D. Md. 1969), 

aff’d sub nom. Evans v. Cornman, 398 U.S. 419 (1970); 39 Op. Att’y 

Gen. 155 (1938); 38 Op. Att’y Gen. 341, 347-348 (1935).55 However, 

for several decades, it was thought that a state’s power to qualify its 

consent was broader under a cession than under a Clause 17 

consent. By the exercise of simple logic, the Supreme Court laid this 

thought to rest in still another leading case, James v. Dravo

Contracting Co., 302 U.S. 134 (1937). 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? Id. at 147-149.

It has become settled since Dravo that a state can qualify either a 

Clause 17 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 v. Yosemite Park & Curry Co., 304 U.S. at 528:

“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.” 

(Footnotes omitted.)

Thus, acquisition of federal jurisdiction is not an “all or nothing” 

proposition. It has become commonplace to define federal 

jurisdiction in terms of four categories:

“[T]here are four general kinds of federal jurisdiction over federal lands: exclusive 

legislative jurisdiction, concurrent legislative jurisdiction, partial legislative 

jurisdiction and proprietorial legislative jurisdiction.” State ex rel. Cox v. Hibbard, 

570 P.2d 1190, 1192 (Or. Ct. App. 1977). 

55Examples of the operation of this principle at the state level include State v. Lane, 

771 P.2d 1150 (Wash. 1989), and People v. Dowdell, 440 N.Y.S.2d 528 (Onondaga Cty. 

Ct. 1981).
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See also Cornman v. Dawson, 295 F. Supp. at 656 n.4. The terms 

“concurrent” and “partial” in this context are self-explanatory and 

mean exactly what they imply.56

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 in this chapter, the state consent we have been 

talking about relates to jurisdiction rather than the acquisition itself. 

For many years prior to 1940, there was in addition 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 what is now the last 

(unnumbered) paragraph of 40 U.S.C. § 255, 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, 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. § 255 is a legal prerequisite to 

the exercise of that jurisdiction. See also Hankins v. Delo, 977 F.2d 

56Jurisdiction Over Federal Areas Within the States, supra note 52, at 14.
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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, 142-143 

(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.57

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).58

57Some 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. 1957). 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 52, at 2.

58This 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 and Cape Canaveral Air Force Station. Finding that the 

Florida law was enacted before the transfer of sovereignty for Cape 

Canaveral AFB 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, IBEW, 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, 318 U.S. 285, 

294 (1943); Macomber v. Rose, 401 F.2d 545 (9th Cir. 1968); 

Economic Development and 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, 794-795 (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. 1951), 

cert. denied, 342 U.S. 885; United States v. 319.88 Acres, 498 F. Supp. 

763 (D. Nev. 1980).

Today, only a small portion of federal land is held in enclave status. 

According to one authority,59 approximately 36.5 million acres are 

59George C. Coggins and Charles F. Wilkinson, Federal Public Land and Resources

Law 146 (1981).
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held under partial or concurrent jurisdiction, and another 6 million 

under exclusive jurisdiction. While these figures may seem large, 

they represent only 5 percent and less than 1 percent, respectively, 

of federal land. Exclusive jurisdiction enclaves tend to be military 

installations or national parks, although not all military installations 

or national parks are enclaves.

As a general proposition, if the United States disposes of enclave 

property, legislative jurisdiction reverts to the state (also called “revesting” 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. v. Wagoner, 376 U.S. 369 (1964) (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 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 (2d Cir. 1993), cert. denied, 510 U.S. 959; and 

Economic Development and Industrial Corp. 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); 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 isn’t 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 noted later in this discussion. Some others are:
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(a) 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. 1984), cert. denied, 

469 U.S. 1062; Vasina v. Grumman Corp., 644 F.2d 112 (2d Cir. 1981). 

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).

(b) State unemployment compensation laws apply on federal 

enclaves. 26 U.S.C. § 3305(d).

(c) State workers’ compensation laws apply on federal enclaves. 

40 U.S.C. § 290. 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. § 290 was upheld in 

Wallach v. Lieberman, 366 F.2d 254 (2d Cir. 1966).60 Section 290 

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 RR. Co. v. Lowe, 

114 U.S. 525 (1885).

Congress has modified this rule somewhat by statute. Under the 

Buck Act of 1940, 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 

60It would appear that the question wasn’t 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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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, 378-379 (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).

The Buck Act permits sales, use, and income taxes, but not property 

taxes. Thus, in B-159835, February 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 (8th Cir. 1942); Sanders v. Oklahoma Tax Comm’n, 

169 P.2d 748 (Okla. 1946).

Still another statute, 10 U.S.C. § 2667(e), 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. 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 Comm’n, 421 U.S. 599 (1975).
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b. Criminal Law The punishment of crimes committed on federal enclaves has been a 

subject of congressional attention since the First Congress.61 At the 

present time, the criminal law structure for federal enclaves consists 

of several specific statutes and one general one.

Congress has enacted a number of criminal statutes, found in 

Title 18 of the United States Code, dealing with criminal offenses on 

federal enclaves. 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 is defined in 18 U.S.C. § 7 as including 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.

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, cited above.

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” except as otherwise provided by law and except for 

offenses committed by one Indian against another Indian. The 

61As 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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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, price-fixing laws, etc. Many of the more recent cases 

involve environmental regulation. Depending on the interplay of 

certain key rules, the state regulatory action may be invalid on all 

federal property, non-enclave as well as enclave, valid on both, or 

valid on some but not all.

State regulatory action will be invalid across the board if 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, discriminating against it or against those with whom it 

does business, or conflicting with valid enactments of Congress. 

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 the 

state licensing law inconsistent 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 
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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, 

August 1, 1967; B-159723, September 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 Supremacy Clause analysis. As the plain 

meaning of the term suggests, “direct regulation” involves attempts 

to regulate federal entities themselves. “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 v. United

States, 495 U.S. 423, 434-435 (1990).62 Like direct regulation, indirect 

regulation must be neutral (non-discriminatory) in order to survive 

the Supremacy Clause. North Dakota, 495 U.S. at 435. From this 

point on, the analysis differs. States can directly regulate federal 

installations and activities only pursuant to clear and unambiguous 

congressional (statutory) authorization. Goodyear Atomic Corp. v.

Miller 486 U.S. 174, 180 (1988); EPA v. State Water Resources 

Control Board, 426 U.S. 200, 211 (1976); Hancock v. Train, 426 U.S. 

167, 179 (1976). The validity of indirect regulation is a question of 

congressional pre-emption. North Dakota, 495 U.S. at 435; Goodyear

Atomic Corp., 486 U.S. at 180 n.1. The pre-emption rules are 

summarized in English v. General Electric Co., 496 U.S. 72, 78-79 

(1990). The mere existence of federal law in a given field does not 

automatically pre-empt state law in that field. There must be a 

conflict or a clear indication of congressional intent to pre-empt. Id.; 

California Coastal Comm’n v. Granite Rock Co., 480 U.S. 572, 593 

(1987).63

62Other cases recognizing the distinction include Hancock v. Train, 426 U.S. 167, 

179-180 (1976); Mayo v. United States, 319 U.S. 441, 447 (1943); Penn Dairies, Inc. v.

Pennsylvania Milk Control Commission, 318 U.S. 261, 270 (1943).

63The direct-indirect distinction, firmly imbedded though it may be, 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. 
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Once you get by the Supremacy Clause hurdle—that is, once it is 

established that the state law or regulation 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.64 The state law or regulation will 

then apply to non-enclave property (there is no longer a reason why 

it shouldn’t), and may or may not apply to enclaves, 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. By the time the Court again had occasion to 

consider the California milk laws in Paul v. United States, cited 

above, 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 the result 

that Paul was 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. 371 U.S. at 268-269.

64Some 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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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. 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.

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; 

Black Hills Power and Light Co. v. Heartland Consumers Power

District, 808 F.2d 665, 668 (8th Cir. 1987), cert. denied, 484 U.S. 818. 

For an example where state law did not apply, compare Miller v.

Wackenhut, 808 F. Supp. 697 (W.D. Mo. 1992).

Precisely how specific the congressional authority must be is 

somewhat unsettled. To rephrase the question: Is a statute which is 

sufficiently specific to survive a Supremacy Clause challenge also 

sufficiently specific to permit the application of state law on an 

enclave or must it explicitly address enclaves? Offutt v. 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 

Black Hills, 808 F.2d. at 673; West River Electric Ass’n v. Black Hills

Power & Light, 918 F.2d. 713, 717-20 (8th Cir. 1990); Tacoma Dept. of

Pub. Util. v. United States, 28 Fed. Cl. 637, 646 (1993), aff’d 31 F.3d 

1130 (Fed. Cir. 1994). 

For an example of 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 subject to such requirements.” Id. at 815. That 

language, the Comptroller General held, “expressly requires federal 

agencies to obtain waste disposal services from local governments” 

when 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 
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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 conclusions 

in this case were later tested 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). 

Another way state regulatory laws may apply on federal enclaves is 

pursuant to congressional sanction. The legislative authorization 

must be “clear and unambiguous.” EPA v. State Water Resources

Control Board, 426 U.S. 200, 211 (1976). An example is the Solid 

Waste Disposal Act, which directs federal agencies to comply with 

state and local requirements regarding the control and abatement of 

solid waste. 42 U.S.C. § 6961. Under this law, it has been held that 

federal installations must comply with local law granting an 

exclusive garbage collection franchise, and thus cannot solicit 

competitive bids. 64 Comp. Gen. 813 (1985); Parola v. Weinberger, 

848 F.2d 956 (9th Cir. 1988). (While both of these cases involved 

federal enclaves, the result would apply equally to non-enclave 

property.) In contrast, no comparable federal legislation was 

applicable in Black Hills Power and Light Co. v. Weinberger, 808 F.2d 

665 (8th Cir. 1987), cert. denied, 484 U.S. 818, holding that an 

exclusive jurisdiction military installation in South Dakota was not 

required to procure its electrical service from a utility holding an 

exclusive franchise under state law.

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. Although the installations in question were exclusive 

jurisdiction enclaves (578 F. Supp. at 550), the result presumably 

would have been the same if they were not. In North Dakota v.

United States, 495 U.S. 423 (1990), 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. The Court 

distinguished this type of indirect regulation, which was permissible 

even though it incidentally raised costs to the military, from the 
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types of direct regulation encountered in cases like Paul and Leslie

Miller.

In cases involving direct regulation of a federal activity where there 

is no conflict with a specific piece of federal legislation, the result 

turns on a balancing of the state’s interest in applying its regulation 

against the federal government’s interest in being free from it. 

Examples are United States v. Town of Windsor, 765 F.2d 16 (2d Cir. 

1985), and B-199838, March 24, 1986. Both cases found local building 

permit requirements inapplicable to government contractors doing 

construction on non-enclave property.

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 Clause 17 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.

As we have seen, federal enclaves comprise less than ten percent of 

all federally owned land. For the remainder—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, 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 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 
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Mexico rancher had obtained a permit from the Bureau of Land 

Management 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. 

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. . . .

“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 542-543. 

The Supreme Court’s opinion was unanimous. Concurrence of the 

burros may be presumed.65

65It 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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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 (in 

which event, of course, state consent would become necessary). 

Nevada v. Watkins, 914 F.2d 1545 (9th Cir. 1990), cert. denied, 

499 U.S. 906 (1991).

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. 1977), cert. denied, 

431 U.S. 949.

• National Park Service could, under a statutory delegation, issue 

regulation requiring use of seat belts in national parks. 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, November 30, 1984.

• Regulations for traffic control on Postal Service property are valid 

under the Property Clause, regardless of presence or absence of 
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enclave jurisdiction. United States v. Gliatta, 580 F.2d 156, 160 (5th 

Cir. 1978), cert. denied, 439 U.S. 1048.

• Federal legislation which authorizes 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.” 426 U.S. at 539. It thus seems 

likely that litigation in this area will continue and that the law will 

continue to evolve.66

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]ny 

agreement which gives rise to [a] relationship of landlord and 

tenant.” Black’s Law Dictionary 889 (6th ed. 1990); B-96826-O.M., 

February 8, 1967. General Services Administration 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.

66As a final note, the federal government may, through legislation under the 

“necessary and proper” clause of the Constitution (Art. I, § 8, cl. 18), 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 anti-handbill regulation in leased building). 
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It is generally recognized that, except for depressed real estate 

markets, leasing is less cost-effective than ownership. See generally

Federal Office Space: Increased Ownership Would Result in

Significant Savings, GAO/GGD-90-11 (December 1989).67

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. 

Id. 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 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. In the Public Buildings 

Amendments of 1972, Congress recognized 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, (1972), reprinted in 1972 U.S.C.C.A.N. 2370, 2373. In any 

event and whatever the reasons, nearly half (48 percent) the space 

controlled by the General Services Administration as of 1994 was 

leased, costing over $2 billion a year. Federal Office Space: More

Businesslike Leasing Approach Could Reduce Costs and Improve

Performance, GAO/GGD-95-48 (February 1995), at 10.

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, the General Services Administration. GSA’s stated 

policy in the Federal Property Management Regulations is to lease 

privately owned space “only when needs cannot be satisfactorily 

67United States v. Bedford Assoc., 657 F.2d 1300, 1309 (2d Cir. 1981), cert. denied, 

456 U.S. 914 (1982).
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met in Government-controlled space” and leasing is more 

advantageous than construction or alteration. 41 C.F.R.

§ 101-18.100(a). As noted above, GSA will also 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 requirement for full and open competition. B-225954, March 30, 

1987. The GSA regulations provide as follows:

“Acquisition of space by lease will be by negotiation except where the sealed bid 

procedure is required by 41 U.S.C. 253(a). Except as otherwise provided in 41 

U.S.C. 253, full and open competition will be obtained among suitable available 

locations meeting minimum Government requirements.” 41 C.F.R. § 101-18.100(d). 

The regulations further provide that acquisition by lease “will be on 

the basis most favorable to the Government . . . and only at charges 

consistent with prevailing scales for comparable facilities in the 

community.” 41 C.F.R. § 101-18.100(c). Specific contracting 

procedures are found in the General Services Administration 

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, in [GAO’s] opinion, 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).

While the term “government-controlled space” as used in the GSA 

regulations includes leased space, the regulations do not give an 

incumbent lessor an exclusive right to negotiate extensions of the 

lease. See B-251337.2, April 23, 1993; 48 Comp. Gen. 722, 724-725 

(1969). Indeed, there are situations in which the government is not 

even required to include the incumbent lessor in the solicitation for 

the new lease. B-251288, March 18, 1993.68

68As 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, March 30, 1987. See also 48 Comp. Gen. at 725.
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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). Therefore, it does not come into 

existence unless and until both parties execute the required 

formalities, i.e., sign the lease contract. B-228279/B-228280, 

January 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, September 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. Id.; 26 Comp. Gen. 331 (1946).69 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 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 

69This 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, August 12, 

1942.
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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. United States v. Petty Motor Co., 327 U.S. 372, 376 (1946); 

United States v. Advertising Checking Bureau, 204 F.2d 770, 772-73 

(7th Cir. 1953); 35 Comp. Gen. 85, 87 (1955); 22 Comp. Gen. 1112, 

1114 (1943). 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. § 257, discussed earlier in 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 

co-extensive with the authority to purchase. Thus, the authority in 

the Federal Property and Administrative Services Act for the 

General Services Administration to enter into leases (40 U.S.C. 

§ 490(h)), in conjunction with 40 U.S.C. § 257, gives GSA the 

authority to acquire a leasehold by condemnation. United States v.

Checking Bureau, 204 F. 2d 770; United States v. Fisk Building, 
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99 F. Supp. 592 (S.D. N.Y. 1951); United States v. Midland Nat. Bank

of Billings, 67 F. Supp. 268 (D. Mont. 1946).70

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. § 257, 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 

Bldg., 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 (1943). 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. There are few areas of government contracting in which the 

desirability of multi-year commitments is stronger than in the case 

70While these cases dealt with the leasing authority in effect prior to the Federal 

Property and Administrative Services Act, there is no reason why the point should 

not apply with equal force to GSA’s current authority.
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of real property leases. For the most part, Congress has provided 

multi-year leasing authority. This is fortunate because it has long 

been settled that, without either such authority or a no-year 

appropriation, a multi-year lease would violate the Antideficiency 

Act by purporting to obligate the government for future years, in 

advance of appropriations for those years.

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 multi-year 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 didn’t 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).

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 multi-year 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. Id. at 207.71 The disposal of 

Goodyear’s appeal was a straightforward application of Leiter. 

71Although 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).
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Goodyear Tire & Rubber Co. v. United States, 276 U.S. 287 (1928). 

“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, March 28, 1940. The sheer number of cases both before 

and after Leiter suggests the strength of the need that ultimately 

generated the multi-year leasing statutes we will discuss later. Of 

course, the case law comes back 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 multi-year 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 authorized to obligate funds for its multiyear leases one year at a time. 40 U.S.C. § 490e. 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 

authority comparable to 40 U.S.C. § 490e or 10 U.S.C. § 2675, that it 

could enter into a multi-year 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 
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government, as tenant, agrees to pay. 24 Comp. Dec. 705 (1918). A 

government lease, especially a long-term one, may include a “tax 

adjustment” clause under which the government agrees to share 

proportionately in any increases or decreases in applicable real 

estate taxes. See 48 C.F.R. §§ 570.702-15 and 552.270-24 (sample 

clause). Without such a clause, 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, March 6, 

1970.

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. USPS, 799 F.2d 1018 (5th Cir. 1986); 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). 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-PR, 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 v. United States, 767 F. 2d 875; Girard

Trust Co. v. United States, 161 F.2d 159 (3d 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); 

Goodfellow Bros., Inc., 81-1 B.C.A. ¶ 14,917; 49 Comp. Gen. 532, 533 

(1970); B-174588, May 17, 1972, aff’d on recons., B-174588, 

September 6, 1972. The same is true with respect to lease formation. 

E.g., United States v. Bedford Assoc., 657 F.2d 1300, 1309-10 (2d 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.
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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. USPS, 671 F.2d 1041 (7th Cir. 1982); Reed v. USPS, 660 F. Supp. 178 

(D. Mass. 1987); Jackson v. USPS, 611 F. Supp. 456 (N.D. Tex. 1985). 

The advantage of using state law is that 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. 

Subpt. 570.7. 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. §§ 570.702-3 and 552.270-12 

(clause). If the landlord violates this provision, the government can 

make the repairs and deduct their cost from rent payments. 

48 C.F.R. §§ 570.702-8 and 552.270-17. In addition, every lease 

includes an “implied covenant of quiet enjoyment.” United States v.

Bedford Assoc., 548 F. Supp. 732, 740 (S.D.N.Y. 1982), modified on

other grounds and aff’d, 713 F.2d 895 (2d 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. 
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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 

construction 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

Assoc., 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. Claims under provisions of this sort are 

discussed in Chapter 12. 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 Soc’y v. United

States, 66 Ct. Cl. 418 (1928). This covenant, “construed with 

reference to the intended use of the property by the lessee,” “also 

requires restoration of the premises to the lessor in the same 

condition as received, reasonable wear and tear excepted.” 

Brooklyn Waterfront Terminal Corp. v. United States, 90 F. 

Supp. 943, 949 (Ct. Cl. 1950). 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 clause required in government procurement 

contracts generally. The government has regarded the “T for C” 
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clause as inappropriate in leases of real property, and General 

Services Administration 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., 72 Comp. Gen. 335, 339 (1993); B-214648, 

December 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, order on stay pending appeal, 31 Fed. Cl. 372, 374 

(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, provides that:

“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, August 29, 1952. The lease 

(paragraph 3 of the Standard Form 2) will state the amount of rent 
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and the intervals at which it is to be paid. Where rent is paid 

monthly, the monthly amount, unless the lease specifies differently, 

is one-twelfth of the annual rental regardless of variations in the 

number of days from month to month. 24 Comp. Gen. 838 (1945).

The government pays either by check or, at the lessor’s option, 

electronic funds transfer. See 48 C.F.R. §§ 532.908(c) and 552.232-73. 

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) and 552.232-71.

(1) Advance payment

By virtue of the prohibition on 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). 

GSA’s regulations provide that rent is due on the first workday of 

each month (48 C.F.R. § 552.232-71, subpara. (a)(1)), but the 

payment covers the month that has just ended rather than the month 

that is beginning.

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, March 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).
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(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 to accrual of the rent. 

B-116413, August 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, September 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, October 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, April 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

As discussed in detail in Chapter 12, the Assignment of Claims Act—

31 U.S.C. § 3727 and 41 U.S.C. § 15—(1) prohibits the assignment of 

claims against the United States except under fairly restrictive 
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conditions, (2) prohibits the transfer of government contracts, and 

(3) 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, October 13, 1981.

To avoid problems under the anti-assignment legislation, early 

decisions72 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, September 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 and 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, Inc. v. United States, cited above.

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 

7216 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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the property. An early Supreme Court case, Freedman’s Saving and

Trust Co. v. Shepherd, cited above, 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.” 127 U.S. at 505. 

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 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. § 552.270-18 

(emphasis added).

This clause is required in larger leases and optional in smaller ones. 

48 C.F.R. § 570.702-9. The 1992 amendment added the underscored 

language. 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).
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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, which serves as the government’s 

chief “leasing agent.”73 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.

GSA’s leasing authority is the combined product of several 

provisions of law. The primary source is the Federal Property and 

Administrative Services Act of 1949, as amended, which authorizes 

GSA to enter into leases for terms of up to 20 years. Specifically, 

section 210(h)(1) of the Act, 40 U.S.C. § 490(h)(1), authorizes the 

Administrator of GSA to

“enter into lease agreements with any person, copartnership, corporation, or other 

public or private entity, which do not bind the Government for periods in excess of 

twenty years for each such lease agreement, on such terms as he deems to be in the 

interest of the United States and necessary for the accommodation of Federal 

agencies in buildings and improvements which are in existence or to be erected by 

the lessor for such purposes and to assign and reassign space therein to Federal 

agencies.”

Around the same time, section 1 of Reorganization Plan No. 18 

of 1950, 40 U.S.C. § 490 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. Still 

another provision of the Federal Property and Administrative 

Services Act, 40 U.S.C. § 490(d), gives the Office of Management and 

Budget permanent authority to transfer to GSA functions “vested in 

any other Federal agency with respect to the operation, 

73Before GSA was created, many of the government’s real property functions were 

performed by the Federal Works Agency. See 40 U.S.C.§ 753; 65 Comp. Gen. 722, 725 

(1986).
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maintenance, and custody of any 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. § 490(h) 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. § 472(b) to 

mean

“any executive agency or any 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 his direction.”

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. § 13a 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. § 472(a). Therefore, by 

its terms, it does not apply to mixed-ownership government 

corporations. 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. § 490(h) refers to the 

length of time that the government is obligated to pay rent. Thus, a 

lease-construction agreement which provides for a two to three 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. § 490(f). Money in 

the Fund is available for expenditure as specified in annual 

appropriation acts. 40 U.S.C. § 490(f)(2). 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., Treasury, Postal Service, and General 
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Government Appropriations Act, 1994, Pub. L. No. 103-123, § 607, 

107 Stat. 1226, 1260. Funds for multi-year leases under 40 U.S.C. 

§ 490(h) are obligated one fiscal year at a time. 40 U.S.C. § 490e.

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).

There is still another funding provision on the books, 40 U.S.C. 

§ 304c, which predates the Federal Property and Administrative 

Services Act. It provides:

 “To the extent that the appropriations of the General Services Administration not 

otherwise required are inadequate therefor, [GSA] may require each Federal agency 

to which leased space has been assigned to pay promptly by check to [GSA] out of 

its available appropriations, either in advance or during the occupancy of such 

space, all or part of the estimated cost of rent, repairs, alterations, maintenance, 

operation, and moving. . . .”

While the creation of the Federal Buildings Fund has diminished the 

significance of 40 U.S.C. § 304c, it remains as a backup. It does not, 

however, alter or expand the availability of the tenant agency’s 

appropriations. B-62051, January 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 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. 

§ 490(h)(2). Alternatively, depending on a variety of circumstances, 
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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 Property 

Management Regulations, specifically 41 C.F.R. Subpt. 101-18.1. 

Section 101-18.101(a) reflects GSA’s broad authority:

“GSA will perform all functions of leasing building space, and land incidental 

thereto, for Federal agencies except as provided in this subpart.”

Subject to certain exceptions, the Federal Property and 

Administrative Services Act authorizes GSA to delegate, and to 

authorize successive redelegation of, any function transferred to or 

vested in GSA by that act. 40 U.S.C. §§ 486(c) and (d). This includes 

leasing. The GSA regulations provide for a wide variety of 

delegations:

• Agencies may do their own leasing, for terms of not more than one 

year, when space is leased for no rental or a nominal rental of $1 a

year. 41 C.F.R. § 101-18.104(a)(1).74

• GSA may grant specific delegations upon request. 41 C.F.R. 

§ 101-18.104(a)(2).

• GSA may grant categorical delegations, under which any agency 

may do its own leasing for specified purposes. 41 C.F.R. 

§ 101-18.104(a)(3). Existing categorical delegations are listed in 

41 C.F.R. § 101-18.104-2 and include such things as greenhouses, 

hangars, hospitals, housing, and ranger stations.

• GSA may grant “special purpose” delegations for space not generally 

suitable for use by other agencies. 41 C.F.R. § 101-18.104(a)(4). 

Existing special purpose delegations are listed in 41 C.F.R. 

§ 101-18.104-3.

• The Departments of Agriculture, Commerce, and Defense may lease 

their own building space, and incidental land, for terms not to 

exceed 5 years, when the space is situated outside any of the “urban 

centers” listed in the regulations. 41 C.F.R. § 101-18.104(b).

74GAO has defined “nominal rental” somewhat more broadly, as denoting “a 

consideration wholly unrelated to the actual or fair market value of the leased 

premises, such as $1 per annum.” 35 Comp. Gen. 713, 714 (1956). Naturally, for 

purposes of the property management regulations, GSA’s definition controls.
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Since what is being delegated is the authority GSA possesses under 

40 U.S.C. § 490(h), the delegation includes the authority to enter into 

multi-year leases for terms of up to 20 years. 41 C.F.R. 

§ 101-18.104-1(b).

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. 

§ 606(a). This is not part of the Federal Property and Administrative 

Services Act but rather is the amended version of section 7(a) of the 

Public Buildings Act of 1959. As relevant to leases, it provides:

“No appropriation shall be made to lease any space at an average annual rental in 

excess of $1,500,000 for use for public purposes if such lease has not been approved 

by resolutions adopted by the Committee on Environment and Public Works of the 

Senate and the Committee on [Transportation and Infrastructure] of the House of 

Representatives. . . . For the purpose of securing consideration for such approval, 

the Administrator [of GSA] shall transmit to the Congress a prospectus of the 

proposed facility . . . .”

Section 606(a) then goes on to specify the contents of the 

prospectus, to 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.75

The application of section 606(a) to leases was not in the original 

Public Buildings Act. Enacted as part of the Public Buildings 

Amendments of 1972, it was the outgrowth of appropriation act 

provisions used throughout most of the 1960s to control leaseconstruction arrangements. See Merriam v. Kunzig, 476 F.2d 1233, 

1237-39 (3d Cir. 1973), cert. denied, 414 U.S. 911. As enacted, 

however, the requirement applies “to all leases, and not merely to 

75Section 606(a) includes three distinct prospectus requirements: (1) construction, 

acquisition, or alteration of public buildings, (2) leasing, and (3) alteration of leased 

space. The first and third appear 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 under the Public Buildings Act 

heading.
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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. GSA can adjust the amount annually in the manner and to the 

extent authorized in 40 U.S.C. § 606(f).

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. 52 Comp. 

Gen. 230 (1972). When leasing on a “single rate” basis, in which 

charges for services and utilities are included in the per square foot 

rental rate, GSA requires the lessor to submit a statement of the 

estimated annual cost of services and utilities, which GSA uses to 

determine the net rental. If it believes the lessor’s figures are 

inaccurate, GSA may adjust the estimate. Id. at 232.

Apart from 40 U.S.C. § 606(c) 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

Assoc., 548 F. Supp. 732, 737 (S.D.N.Y. 1982), modified on other

grounds and aff’d, 713 F.2d 895 (2d 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. § 101-18.104-1(c).

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 second-guessed as long as it has a rational basis. 59 Comp. 

Gen. 474, 480 (1980); B-190730, September 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, September 28, 1987.
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Of course, nothing is that simple. Section 101-17.205(a) of 41 C.F.R. 

ch. 101, subch. D, App. states the truism that the agency’s 

determination must be “in accordance with all applicable statutes, 

regulations and policies.” This is alluding to the fact that 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 “historic properties available to the agency” before leasing other 

buildings. 16 U.S.C. § 470h-2(a). Another provision of law directs 

GSA to “acquire and utilize space in suitable buildings of historic, 

architectural, or cultural significance, unless use of such space 

would not prove feasible and prudent compared with available 

alternatives.” 40 U.S.C. § 601a(a)(1). “Historic, 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. 40 U.S.C. § 612a(4). While one court has 

held that 40 U.S.C. § 601a(a)(1) does not apply to properties which 

GSA is leasing for other agencies, the policy has been incorporated 

into Executive Order No. 12072 (1978), reprinted at 40 U.S.C. § 490 

note, which does apply. Birmingham Realty Co. v. GSA, 497 F. 

Supp. 1377, 1384-86 (N.D. Ala. 1980).

A solicitation of offers for a lease should state how the historic 

building preference will be applied. 62 Comp. Gen. 50 (1982). 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. §§ 570.701-4 and 552.270-4.

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. 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 
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Act of 1972, now found at 42 U.S.C. § 3122(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, March 10, 1980.

The City of Reading 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.” 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.” 816 F. Supp. at 360.

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 Co. v. GSA, 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.
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d. Parking As discussed in 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, 654-655 

(D.D.C. 1980) (government employee does not have a “property 

interest in free parking”); B-168096, December 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, employee morale and retention. E.g., 63 Comp. Gen. 270, 

271 (1984); B-168096, January 5, 1973. 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 authority under the 

Federal Property and Administrative Services Act, it may include 

parking facilities, and the tenant agency’s 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, 

February 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 Property Management 

Regulations. 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 otherwise subject to the Federal Property and 

Administrative Services Act 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., November 6, 1964) or a 

delegation of authority from GSA. B-162021, July 6, 1977. At one 

time, an agency which 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, supra. Under current procedures, the agency must 

first make a request to GSA to determine if any government-
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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. ch. 101, Subch. D. App., § 101-17.202-

2(a) (1994). 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 morale or operating efficiency, 

although it is still expected to use the same standard. 72 Comp. 

Gen. 139, 141 (1993); 63 Comp. Gen. 270, 271 (1984).

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, March 11, 1966. The Carmen case involved a plan, 

subsequently withdrawn, to phase out free parking as an energy 

conservation measure.

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, August 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.
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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.”76

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.

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.

§ 552.270-12. 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). As noted earlier under the Rights and 

Obligations heading, 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 251-252.

Alterations are of two general types: those necessary at the outset 

of the lease to make the space suitable for the government’s needs 

76Any 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 this 

chapter. The remainder of this section presupposes that, for whatever reason, the 

rule does not pose an impediment. 
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(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 GSA uses to give the 

government the right to make alterations during the course of the 

lease is found at 48 C.F.R. § 552.270-19. 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 which are the responsibility of the General Services 

Administration are financed from the Federal Buildings Fund, a 

revolving fund established by 40 U.S.C. § 490(f). See 41 C.F.R. 

§ 101-21.501. Money in the Fund is available as and to the extent 

specified in annual appropriation acts. 40 U.S.C. § 490(f)(2). 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., the Treasury, Postal Service, and General 

Government Appropriations Act, 2000, Pub. L. No. 106-58, 113 Stat. 

430, 451 (1999). 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, August 8, 1979. In 

addition, as with GSA’s leasing operations in general, 40 U.S.C. 

§ 304c exists as backup authority for GSA to charge the cost of 

alterations to the tenant agency. See B-141560, January 15, 1960.

Major alteration projects require congressional approval under 

40 U.S.C. § 606(a). When this provision was originally enacted as 

part of the Public Buildings Act of 1959, it applied to alterations to 

government-owned buildings but not to leased buildings. 65 Comp. 

Gen. 722 (1986). Congress amended section 606(a) in the Public 

Buildings Amendments of 1988 to add the following requirement:

“No appropriation shall be made to alter any building, or part thereof, which is 

under lease by the United States for use for a public purpose if the cost of such 

alteration would exceed $750,000 unless such alteration has been approved by 
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resolutions adopted by the Committee on Environment and Public Works of the 

Senate and the Committee on [Transportation and Infrastructure] of the House of 

Representatives.” Pub. L. No. 100-678, § 3(a), 102 Stat. 4049 (1988). 

Approval is secured by submitting a prospectus to the appropriate 

committees.77

Alterations within the general scope of the lease will normally be 

acquired through a modification to the lease. Beyond-scope 

alterations may be acquired through a separate contract, a 

supplemental lease agreement, or by having the work performed by 

government employees. 48 C.F.R. § 570.601. As noted earlier, 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., November 24, 1964. 

GSA’s current procedures for obtaining reimbursable space 

alterations are contained in 41 C.F.R. §§ 101-20.106-1, 101-20.106-2.

f. Rental in District of Columbia Originally enacted in 1877 (19 Stat. 370), 40 U.S.C. § 34 provides:

“No contract shall be made for the rent of any building, or part of any building, to be 

used for the purposes of the Government in the District of Columbia, until an 

appropriation therefor shall have been made in terms by Congress, and this clause 

shall be regarded as notice to all contractors or lessors of any such building or any 

part of 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.78

The enactment of the Federal Property and Administrative Services 

Act in 1949 considerably diminished the impact of 40 U.S.C. § 34. 

GAO commented as follows in B-159633, May 20, 1974:

77See Public Buildings Act heading for further detail.

78E.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).
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“[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. § 490(h)] 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. § 34 . . . would have been satisfied.”79

Thus, the rule has developed that 40 U.S.C. § 34 is satisfied where 

GSA arranges for the space under authority of the Federal Property 

and Administrative Services Act or delegates the authority to the 

renting agency. Id. See also 56 Comp. Gen. 572 (1977); B-114827, 

October 2, 1974; B-159633, September 10, 1974; B-157512-O.M., 

September 1, 1972.

GSA’s Federal Property Management Regulations, issued under 

authority of the Federal Property and Administrative Services Act, 

provide the basis for another significant clarification. Earlier 

decisions had construed 40 U.S.C. § 34 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);80 11 Comp. Dec. 678 (1905). GSA 

subsequently issued a regulation, now found at 41 C.F.R. 

§ 101-17.101-4, which treats 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. § 34] providing they 

comply with the requirement of [the GSA regulations].” Id. at 1058.

79B-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.

80This case illustrates what used to be a somewhat bizarre, although probably 

intended, consequence of 40 U.S.C. § 34. 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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For situations not governed by the Federal Property and 

Administrative Services Act, or where an agency subject to the Act 

attempts to contract directly rather than through or under 

delegation from GSA, 40 U.S.C. § 34 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, October 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 short-term 

conference facilities, the “service contract” concept cannot be 

extended to include lodging accommodations, which remain subject 

to 40 U.S.C. § 34. 56 Comp. Gen. 572 (1977).

The statute requires an appropriation “in terms.” This means 

“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 
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Justice had become “unsafe, overcrowded, and dangerously 

overloaded.” 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. 

§ 34] 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. § 34 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.

The statute similarly does not apply in situations which amount to 

inverse condemnations. Semmes and 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. § 34 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. § 34, as long as 

the rental was in furtherance of an authorized agency purpose.

A related statute is 40 U.S.C. § 35:

“Where buildings are rented for public use in the District of Columbia, the executive 

departments are authorized, whenever it shall be advantageous to the public 

interest, to rent others in their stead: Provided, That, except as otherwise provided, 
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no increase in the number of buildings in use, nor in the amounts paid for rents, 

shall result therefrom.”

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, 

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,81 and (2) for repairs, 

alterations, or improvements to the rented premises in excess of 25 

percent of the first year’s rent.82

This statute generated literally dozens of decisions. The 15 percent 

limitation, the General Services Administration Board of Contract 

Appeals stated in a 1984 case, “is a blunt instrument at best, . . . 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. General Services Administration’s Practices for Altering

Leased Buildings Should Be Improved, GAO/LCD-78-338, 19-22

(September 14, 1978).

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 it 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 

81E.g., 57 Comp. Gen. 591 (1978); 21 Comp. Gen. 906 (1942); 12 Comp. Gen. 546 

(1933); 12 Comp. Gen. 440 (1932).

82E.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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of 1988, Pub. L. No. 100-678, § 7, 102 Stat. 4049, 4052. 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 obsolete.

h. Some Agency-Specific 

Authorities

The General Services Administration 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 note 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). 

Another provision gives the military departments authority to 

“acquire any interest in land” that does not cost more than $200,000 

exclusive of administrative costs and the amounts of any deficiency 

judgments. 10 U.S.C. § 2672(a). Before entering into a lease of real 

property in the United States whose estimated annual rental is more 

than $200,000, military departments must report the transaction to 

the Senate and House Armed Services Committees and allow a 

30-day waiting period. 10 U.S.C. § 2662(a)(2).

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 authorize multi-year leases—up to 

5 years under section 2675 and up to 10 years under section 

2828(c)—and permit the leases to be obligated year-by-year against 

annual appropriations. 10 U.S.C. §§ 2675, 2828(d). Appropriations 

available for “maintenance or construction” may be used for leases 

under sections 2672 or 2675. 10 U.S.C. § 2673. 

Some examples from the civilian side of the government are:

• 15 U.S.C. § 78d(b)(2): Securities and Exchange Commission “is 

authorized to enter directly into leases for real property” and is 

exempt from GSA’s space management regulations.
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• 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 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. 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 multi-year 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 multi-year authority, and require affirmative renewal by 

the government to extend beyond that point. 5 Comp. Gen. 355 

(1925); A-91697, March 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. Leased Military

Housing Costs in Europe Can Be Reduced by Improving Acquisition

Practices and Using Purchase Contracts, GAO/NSIAD-85-113, 7-8 
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(July 24, 1985). 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, October 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 multi-year 

leasing authority generally also have authority to pay rent in 

advance. 10 U.S.C. § 2396(a) (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 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, April 18, 

1979, described more fully in Chapter 7, for an unusual application 

based on custom in South Korea. The same is true for the 

Assignment of Claims Act. 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 
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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 up to a specified 

percentage. 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.

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, 

February 19, 1946.

The extreme case occurred in B-189121, November 30, 1977, recons.

denied, B-189121, April 15, 1983. A lease in former Cambodia 
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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 claimfree existence. In B-185960, August 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 in that case, the Navy, 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, April 15, 1983.

4. Lease-Purchase 

Transactions

In the context of government real property, the term “leasepurchase” 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 “purchase contracts.” Putting 

things in budgetary perspective, a Senate committee made the 

following observation in connection with 1954 lease-purchase 

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 lease-purchase 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 
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lowest, the second would be the next lowest in cost, and the third would be the 

most costly method.”83

A variation is “lease-construction,” which is similar to leasepurchase except that, at the end of the lease, title does not pass to 

the government. Lease-construction is the most expensive method 

of all.84

The reason the government resorts to lease-purchase or leaseconstruction 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 

Purchase Contract Act, 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.”85 Thus, 

while Congress has repeatedly resorted to lease-purchase over the 

second half of the 20th century, it has done so with ambivalence.

The first major lease-purchase program was the Public Buildings 

Purchase Contract Act of 1954, 68 Stat. 518, 40 U.S.C. § 356—

seemingly temporary, stopgap legislation designed to meet the needs 

of an expanding government in the post-World War II era. The 

legislation authorized the General Services Administration 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 three years of the 

legislation’s enactment. Section 411(e) of the Public Buildings 

83S. Rep. No. 83-1084, at 2 (1954), reprinted in 1954 U.S.C.C.A.N. 2637, 2638. This is 

the report of the Senate Committee on Public Works on what became the Public 

Buildings Purchase Contract Act of 1954.

84See H.R. Rep. No. 87-2050, at 13 (1962), quoted in Merriam v. Kunzig, 476 F.2d 1233, 

1237 n.3 (3d Cir. 1973), and in 51 Comp. Gen. 573, 575 (1972). This is the report of 

the House Committee on Appropriations on the Independent Offices Appropriation 

Act for 1963.

85S. Rep. No. 83-1084, supra note 83, at 2.
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Purchase Contract Act, as added by section 101, 68 Stat. 519. (We 

will return to subsection (e) below.) The contracts were to provide 

for equal annual payments to amortize principal and interest, not to 

exceed limitations specified in appropriation acts. Id. 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, November 7, 1961; B-130934, June 26, 1957.

Several aspects of the 1954 legislation became prototypes for future 

lease-purchase 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 does 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 is 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 does 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, subsection (e) of the 1954 law (68 Stat. 519), 

required prospectus approval by congressional oversight 

committees as a prerequisite to the 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, October 5, 

1956. Of course, what is “reasonable” requires a case-by-case 

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, subsection (e) limited the time for 

prospectus approval to 3 years after the date of enactment (July 22, 

1954). Congressional discomfort with the program is also evident in 

another provision of the 1954 law, 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.”
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When the 3-year period elapsed, Congress declined to renew the 

program.86 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 (1958). Public Law 

85-844 exempted 29 projects started or planned under the 1954 law 

and authorized one new project. See B-160929, April 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(c), 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 “lease-construction” which, as we have noted, is even more 

costly to the taxpayer. Congress filled this gap by enacting an 

appropriation rider for 9 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, e.g., 45 Comp. Gen. 27, 29 (1965) and 

44 Comp. Gen. 491, 492 (1965). Even though it was one of GSA’s 

86Subsection(e) has been dropped from the U.S. Code as fully executed. 

Nevertheless, the limitation continues to apply (see 40 U.S.C. § 356 note), subject, 

of course, to explicit legislative exceptions, as discussed in the text.
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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 

(1970). Two years later, Congress amended 40 U.S.C. § 606 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 (3d Cir. 1973), cert. denied, sub nom. Gateway

Center Corp. v. Meriam, 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”87 of lease-purchase and enacted section 5 of 

the Public Buildings Amendments of 1972, 40 U.S.C. § 602a. 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 expiration of the contract term. 40 U.S.C. 

§ 602a(a).

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 

87H.R. Rep. No. 92-989, (1972), reprinted in 1972 U.S.C.C.A.N. 2370, 2373 (report of 

the House Committee on Public Works).
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remain on state and local tax rolls until title passes to the United 

States. 40 U.S.C. §§ 602a(b)(3), 602a(d). Also 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). 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, 

April 26, 1976.

GSA has 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, September 9, 1992.

Although the authority of 40 U.S.C. § 602a, like its 1954 predecessor, 

is now closed to the initiation of new projects, 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 (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 (June 

1988).
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• The 1988 continuing resolution, Pub. L. No. 100-202, 101 Stat. 1329 

(1987), authorized several lease-purchase projects. See 101 Stat. 

at 1329-405 through 1329-407.

• Another 1987 statute, the Federal Triangle Development Act, 

40 U.S.C. §§ 1101-1109, authorizes development of a federal building 

complex in Washington, D.C., using lease-purchase, with planning 

and construction under the supervision of the Pennsylvania Avenue 

Development Corporation. Financing, discussed in B-248647.2, 

April 24, 1995, and B-248647, December 28, 1992, is being 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, August 24, 1990.

GSA’s authority is now found in 40 U.S.C. §§ 490(h) and 490d, in 

conjunction with the prospectus approval requirement of 40 U.S.C. 

§ 606(a). Subsection 490(h)(1), GSA’s general leasing authority in the 

Federal Property and Administrative Services Act, authorizes leases 

of up to 20 years “in buildings and improvements which are in 

existence or to be erected by the lessor for such purposes.” This 

provision, although the result is probably not what Congress had in 

mind (see 38 Comp. Gen. 703 (1959)), 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; B-166868, 

July 15, 1969; B-157423-O.M., September 14, 1965; B-156917-O.M., 

June 24, 1965.

Section 490d, which first made its appearance as section 6 of 

5101(m) of the 1987 continuing resolution, Pub. L. No. 99-500, 

100 Stat. 1783-321, provides:

“Funds hereafter made available to the General Services Administration for the 

payment of rent shall be available for the purpose of leasing, for periods not to 

exceed thirty years, space in buildings erected on land owned by the United States.”

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 tracking the status and fiscal impact of congressional 

budgetary actions.” B-239435, August 24, 1990. See also A Glossary

of Terms Used in the Federal Budget Process (Exposure Draft), 

GAO/AFMD-2.1.1 at 71-72 (January 1993). It is necessary in order to 

comply with various aspects of the Congressional Budget Act. The 

problems are discussed in Budget Issues: Budget Scorekeeping for

Acquisition of Federal Buildings, GAO/T-AIMD-94-189 

(September 20, 1994), and The Budget for Fiscal Year 1991: Scoring

of GSA Lease-Purchases, GAO/AFMD-91-44 (January 1991). The 

scorekeeping issue is largely another facet of the budgetary 

concerns to which we have alluded throughout this discussion.

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 lease-purchase 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. 

T-AIMD-94-189, supra, at 3.

The 1999 edition of Office of Management and Budget Circular 

No. A-11 addresses the scoring of lease-purchases in some detail. It 

provides that, for scorekeeping purposes:

“The up-front budget authority required [in the year in which the authority is first 

made available] for both lease-purchases 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 plus any annual 

operating expenses will be recorded on an annual basis over the lease term.” OMB 

Cir. No. A-11, App. B. para 2(b).88

However, 40 U.S.C. § 490e provides:

88OMB’s instructions for reporting obligations say essentially the same thing. OMB 

Cir. No. A-34, sec. 11(e) (1999).
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“Notwithstanding any provisions of this Act or any other Act in any fiscal year, 

obligations of funds for lease, entered into in accordance with section 490(h)(1) of 

this title [section 210(h)(1) of the Federal Property and Administrative Services Act 

of 1949, as amended], shall be limited to the current fiscal year for which payments 

are due without regard to [the Antideficiency Act, 31 U.S.C. § 1341].

F. Public Buildings and 

Improvements

1. Construction 

a. General Funding Provisions (1) 41 U.S.C. § 12

Originally enacted in 1868 (15 Stat. 177), 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 “over obligation” 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 
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title or imprisoned [not more than a year],” or both. 18 U.S.C. § 435 

(enacted as part of the same 1868 legislation as 41 U.S.C. § 12).89

For construction within the District of Columbia, 41 U.S.C. § 12 is 

reinforced by another statute, 40 U.S.C. § 68, which provides that 

“there shall not be erected on any reservation, park, or public 

grounds, of the United States within the District of Columbia, any 

building or structure without express authority of Congress.” While 

41 U.S.C. § 12 has spawned numerous decisions, one finds little 

mention of 40 U.S.C. § 68 apart from the occasional passing 

reference such as 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. “[T]he 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., August 26, 1969 (structure with a foundation, walls, 

separate rooms, and a roof fits the ordinary meaning of the term).90 

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). 

89The 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). 

90Such wisdom is not the exclusive province of the General Accounting Office. 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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• 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). 

• Pontoon storage shed. 16 Comp. Dec. 685 (1910). 

An extension or addition to a public building is also covered. 

A-59252, December 28, 1934; A-40231, January 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, 

August 9, 1945 (heavy concrete chamber partly above and partly 

below ground intended for temporary use in testing explosives). 

• Greenhouses. B-141793-O.M., February 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 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. 
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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 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).91 

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, March 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 

black-letter 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, August 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. 

91The 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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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, March 24, 1958 (conversion of 

buildings into schools); B-76841, August 23, 1948 (conversion of 

school building to clinic); B-170587-O.M., October 21, 1970 

(conversion of office space into laboratories); B-151369-O.M., 

November 15, 1963, and B-151369-O.M., September 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, November 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., October 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, 

October 1, 1953. 
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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, March 9, 1940 (appropriation for 

construction of public works 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, August 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). 

Exceptions have occurred in a very few cases in which failure to 
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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). Use of a general operating appropriation in 

disregard of 41 U.S.C. § 12 can result in violation of the 

Antideficiency Act. E.g., B-118779, November 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, September 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 enacted in 1908, 40 U.S.C. § 261, recognizes that, for any 

number of reasons, Congress may not wish to fully fund the 

construction of a public building up front. It provides: 

“[I]n all cases where appropriations are made in part only for carrying into effect 

the provisions of legislation authorizing the acquisition of land for sites or for the 

enlargement of sites for public buildings, or for the erection or remodeling, 

extension, alteration, and repairs of public buildings, the Administrator of General 

Services, unless otherwise specifically directed, may enter into contracts within the 

full limit of cost fixed by Congress therefor.” 

Thus, if Congress has established the total cost of the construction 

or renovation of a public building, or of related site acquisition, and 
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subsequently appropriates only part of the money, 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. § 261 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. § 261 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. § 261 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: 

“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.92

92There 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, the origin of which is discussed in 

some detail in Chapter 2, 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.” 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 one-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). 

• Repairs or improvements. 1 Comp. Gen. 435 (1922), aff’d upon

reconsid., 1 Comp. Gen. 532 (1922). 

• Remodeling and/or enlarging. 10 Comp. Gen. 454 (1931); 7 Comp. 

Gen. 619 (1928). 
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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, December 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, December 9, 1964.93

(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. § 609(a) (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). 

Contracting for A&E services is governed by the Brooks ArchitectEngineers Act, 40 U.S.C. §§ 541-544, which prescribes a negotiation 

93Although 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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procedure based primarily on competence rather than price. The 

Act’s policy 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.” 40 U.S.C. § 542. 

The Brooks A&E Act does not apply merely because part of the 

contract work will be done by architects or engineers; rather, it 

applies to a procurement which “uniquely or to a substantial or 

dominant extent requires performance by an A-E firm.” 61 Comp. 

Gen. 377 (1982). It also applies to small business set-asides, 

including those under section 8(a) of the Small Business Act. 

59 Comp. Gen. 20 (1979); B-129709, October 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. § 612(1), the A&E procurement is done by the 

General Services Administration unless delegated to another agency 

in accordance with 41 C.F.R. §§ 101-19.402(c) and 101-19.501. 

40 U.S.C. §§ 609, 614. 

The Clinger-Cohen Act of 1996, Pub. L. No. 104-106, Div. D, sec. 4105 

(often referred to as the “Federal Acquisition Reform Act”), 

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 of 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.” H.R. Rep. No. 104-450, 

at 966 (1996). Consequently, the two-phase approach represents an 

alternative to the “design-bid-build” procedures of the Brooks A&E 

Act. 

The two-phase selection approach may be used when three or more 

offers will likely be received, design work must be completed before 

a price proposal can be submitted, substantial costs will be incurred 

by the prospective offerors in preparing their proposals, and certain 

other specific criteria have been considered. The agency solicits 

phase-one proposals that describe the offerors’ technical 
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approaches and technical qualifications. The agency then solicits 

phase-two proposals from the most qualified offerors, normally not 

more than five. Final consideration is based on technical merit and 

price. 

Architects and engineers, like the rest of us, expect to be paid for 

their services. They should be paid, says the Brooks Act provision 

quoted above, “at fair and reasonable prices.” In order to keep “fair 

and reasonable” from becoming excessive, a series of statutes, all of 

which actually predate the Brooks Act, 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, originating in the Armed Services 

Procurement Act of 1947, 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, 

189-190 (1966) (ceiling applies to A&E services procured under 

authority of what is now 38 U.S.C. § 513); B-152306, January 5, 1967 

(limited exemption under 22 U.S.C. § 296). 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). Subsection (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)). These provisions originated 

in 1939. See 46 Comp. Gen. 556, 559 (1966). 
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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 definitive 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., November 28, 1961. 

“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 

architect-engineer’s fee to be based on the cost of work for which he 

rendered no service.” Id. See also 47 Comp. Gen. 61, 67 (1967); 

B-152306, January 24, 1967; B-115013-O.M., April 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, February 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., 

November 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 1939 statutes—apply to all contracts 

regardless of type, cost-plus as well as fixed-price. 46 Comp. 
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Gen. 556 (1966); 46 Comp. Gen. 183 (1966); B-115013-O.M., April 28, 

1953. 

Differences in the statutory language have produced some 

controversy over precisely what to include when assessing 

compliance with the fee limitation, i.e., 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. 

22 Comp. Gen. 464 (1942); 46 Comp. Gen. 556, 564 (1966). 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 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, January 18, 1982. 

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. 
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The view expressed in B-205793, January 18, 1982, is consistent with 

the Federal Acquisition Regulation, which provides: 

“For architect-engineering 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(c)(4)(i)(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, March 19, 1942. It follows 

that an A&E contract in the form of a cost-plus-fixed-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, November 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 B.C.A. ¶ 27,080 

(1994); R.M. Otto Co., Inc. & Associates, VABCA No. 1526, 82-2 

B.C.A. ¶ 15,889 (1982); Shaw Metz & Associates, VACAB No. 774, 

71-1 B.C.A. ¶ 8679 (1971); William Cramp Scheetz, Jr., ASBCA 

No. 9501, 1964 B.C.A. ¶ 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. 94-3 B.C.A. 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, January 24, 1967. See also Skidmore,

Owings & Merrill, ASBCA No. 6062, 1962 B.C.A. ¶ 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): 
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“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 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,94 all of which can be viewed as 

exceptions to 41 U.S.C. § 12. 

(1) Military construction

Not surprisingly,95 the most detailed and comprehensive scheme is 

that applicable to the Defense Department and the military 

departments.96 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).97 Most of the funds are authorized by 

installation, in line-item format. In addition, each department 

94For example, consider the VA’s authority to build medical facilities under 

38 U.S.C. §§ 8103, 8104, 8106 (which includes a provision roughly analogous to 

41 U.S.C. § 12).

95The reason it is not surprising is that, as we will see later, the Public Buildings Act 

does not apply to construction on military installations.

96The funding structure for Coast Guard construction projects is based on the same 

key elements as that for military construction—a requirement for prior 

authorization combined with flexibility for smaller projects. See S. Rep. No. 88-205, 

reprinted at 1963 U.S.C.C.A.N. 699-704.

97Examples for 1994 are the Military Construction Authorization Act for Fiscal 

Year 1994, Pub. L. No. 103-160, Div. B, 107 Stat. 1547, 1856, (1993) and the Military 

Construction Appropriations Act, 1994, Pub. L. No. 103-110, 107 Stat. 1037 (1993). 

As these examples illustrate, the authorization and appropriation acts are 

occasionally enacted in reverse order.
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receives a lump-sum authorization for “unspecified minor military 

construction projects.” 

Substantive provisions are found in the Military Construction 

Codification Act, codified chiefly in 10 U.S.C. chapter 169.98 “Military 

construction” is defined broadly as “any construction, development, 

conversion, or extension of any kind carried out with respect to a 

military installation.” 10 U.S.C. § 2801(a). A “military construction 

project” is 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). “Minor military construction” is military construction 

“(1) that is for a single undertaking at a military installation, and

(2) that has an approved cost equal to or less than $1,500,000.” 

10 U.S.C. § 2805(a)(1). 

It is provided in 10 U.S.C. § 2805(a)(1) that, “within an amount equal 

to 125 percent of the amount authorized by law for such purpose”—

i.e., the lump-sum minor military construction authorization—each 

department may carry out minor military construction projects as 

defined above which are “not otherwise authorized by law.” 

Projects costing more than $500,000 must first be reported to 

Congress. 10 U.S.C. § 2805(b)(2). Subsection (c)(1) further enhances 

flexibility by permitting unspecified minor military construction 

projects costing not more than $300,000 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, March 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, April 20, 1972. 

As noted above, a construction project is defined in terms of a 

“complete and usable facility” unless something less is specifically 

98The Act, which is constantly being reviewed and 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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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, December 24, 1991; B-213137, January 30, 1986; 

B-159451, September 3, 1969; B-133316-O.M., August 27, 1962. As 

most of these references point out, directives of the military 

departments also prohibit splitting. 

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-237137, January 30, 1986; B-133316, 

October 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 multi-year 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 and 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 
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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 Civil Works 

Revolving Fund (33 U.S.C. § 576). B-242974.6, November 26, 1991 

(internal memorandum). 

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. 33 U.S.C. §§ 426b, 701.99

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.” 

While to an extent 43 U.S.C. § 388 can also be viewed as an 

exception to the Antideficiency Act (B-72020, January 9, 1948), 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: 

99In 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, January 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).100

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 Bros. 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 B. C. A. ¶ 9762 

(1972), denying recovery where the exhaustion of funds was due to 

a presidential impoundment. 

100For further relevant discussion, see “Full faith and credit” heading in Chapter 14.
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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 shortfall in 

Healy was at least partly the agency’s fault. Id. 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, October 18, 1948, and 

B-151369-O.M., November 15, 1963. 
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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 in the Agriculture Department’s 1994 

Appropriations Act, Pub. L. No. 103-111, 107 Stat. 1046, 1050 (1993). 

Exceeding an applicable limitation violates 41 U.S.C. § 12. 

B-151369-O.M., November 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. (Section 278d is the first 

element in the 39 Comp. Gen. 723 formula.) 

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, 

March 18, 1957; B-124596-O.M., August 26, 1955. A separate 

provision of law now authorizes, in the performance of Institute 
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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). 

c. Public Buildings Act In 1949, the Federal Property and Administrative Services Act 

centralized a number of the government’s housekeeping functions in 

the General Services Administration. Ten years later, Congress 

enacted the Public Buildings Act of 1959, Pub. L. No. 86-249, 73 Stat. 

479, to do essentially the same thing for public buildings acquisition 

and construction. Amended significantly in 1972, 1976, and again in 

1988,101 the Act is found at 40 U.S.C. chapter 12. 

The statute gives a fairly complicated definition of “public building.” 

The term means— 

“any building, whether for single or multitenant occupancy, its grounds, 

approaches, and appurtenances, which is generally suitable for office or storage 

space or both for the use of one or more Federal agencies or mixed ownership 

corporations, [specifically including such structures as office buildings, 

courthouses, warehouses, and similar Federal facilities].” 40 U.S.C. § 612(1). 

The definition then goes on to list several exemptions, including 

buildings which are 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.; 41 C.F.R. § 101-19.003-6(a). Thus, wholly apart from 

specific exemptions Congress may from time to time legislate, the 

Public Buildings Act itself carves out several large exemptions from 

the definition. What’s left is a “public building” governed by the Act. 

101Public Buildings Amendments of 1972, Pub. L. No. 92-313, 86 Stat. 216; Public 

Buildings Cooperative Use Act of 1976, Pub. L. No. 94-541, 90 Stat. 2505; Public 

Buildings Amendments of 1988, Pub. L. No. 100-678, 102 Stat. 4049.
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In addition, leased buildings are not “public buildings.” 41 C.F.R. 

§ 101-19.003-6(b); 65 Comp. Gen. 722, 727-729 (1986).102

The first section of the statute, 40 U.S.C. § 601, sets the policy by 

declaring that “[n]o public building shall be constructed except by” 

GSA. “Construct” means simply “to build a public building,” 

including related plans, specifications, studies and surveys. 

41 C.F.R. § 101-19.003-3. 

Section 604 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. § 604(a). 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. § 604(c); 71 Comp. Gen. 333 (1992). The site 

selected should be the one “most advantageous to the United States, 

all factors considered.” 40 U.S.C. § 604(c). 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 604 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 connection with 

leasing, applies to site selection under 40 U.S.C. § 604. Therefore, it 

is within GSA’s discretion when soliciting sites for public building 

102Just because a leased building is not a “public building” for purposes of the Public 

Buildings Act does not mean that it is not a public building for purposes of other 

statutes. It is necessary to examine the particular statute and context. E.g., 

34 Comp. Gen. 697 (1955) (Miller Act, Davis-Bacon Act, etc.); 30 Comp. Gen. 117 

(1950) (Randolph-Sheppard Act); 17 Comp. Gen. 283 (1937).
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construction to limit consideration to a central business area. 

B-251581.2, July 13, 1993. 

As noted earlier, any construction project requires architectural and 

engineering services, and 40 U.S.C. § 609(a) 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. § 609(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. §§ 619(a), (b). 

Artistic concerns are also relevant. GSA regulations provide: 

“Fine arts, as appropriate, will be incorporated in the design of selected new public 

buildings. Fine arts, including painting, sculpture, and artistic work in other 

mediums, will reflect the national cultural heritage and emphasize the work of 

living American artists.” 41 C.F.R. § 101-19.002(m).

This provision does not have an explicit statutory basis, but has long 

been in the regulations. See B-95136, March 26, 1976. 

The Public Buildings Act also authorizes GSA to alter public 

buildings. 40 U.S.C. § 603(a). “Alter” includes “repairing, remodeling, 

improving, or extending or other changes in a public building.” 

40 U.S.C. § 612(5). As with construction, the term includes related 

plans, designs, surveys, etc. 41 C.F.R. § 101-19.003-1. 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 

United States.” 40 U.S.C. § 608. It may also contract with other 

agencies, such as the Army Corps of Engineers, under the Economy 

Act, 31 U.S.C. § 1535. See B-172186, April 5, 1971. 

GSA may delegate most of its functions under the Public Buildings 

Act. 40 U.S.C. § 614. For projects whose estimated cost does not 

exceed $100,000, delegation is mandatory upon request. Id.; 

41 C.F.R. § 101-19.501. 

An important provision of the Public Buildings Act is the prospectus 

approval requirement of 40 U.S.C. § 606(a): 
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“In order to insure the equitable distribution of public buildings throughout the 

United States with due regard for the comparative urgency of need for such 

buildings, except as provided in section 603 of this title, no appropriation shall be 

made to construct, alter, purchase, or to acquire any building to be used as a public 

building which involves a total expenditure in excess of $1,500,000 if such 

construction, alteration, purchase, or acquisition has not been approved by 

resolutions adopted by the Committee on Environment and Public Works of the 

Senate and the Committee on [Transportation and Infrastructure] of the House of 

Representatives.”103

The “except as provided in section 603” refers to 40 U.S.C. § 603, 

which authorizes GSA to alter public buildings and to acquire land 

necessary to carry out the alterations, and then provides: 

“No approval under section 606 of this title shall be required for any alteration and 

acquisition authorized by this section the estimated maximum cost of which does 

not exceed $1,500,000.” 

Approval is obtained by submitting a prospectus to the specified 

committees. The contents of the prospectus, set forth in 40 U.S.C. 

§ 606(a), include (1) a brief description of the building to be 

constructed, altered, purchased, or acquired; (2) the location of the 

building and an estimate of the maximum cost to the United States; 

(3) a comprehensive plan addressing the space needs of all 

government employees in the locality; (4) if construction is involved, 

a statement that other suitable space is not available either in 

government-owned buildings or at comparable cost; (5) justification 

for not using buildings identified pursuant to the National Historic 

Preservation Act; and (6) 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. § 606(b). 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 one year after the date of 

approval. 40 U.S.C. § 606(c). GSA may adjust any dollar amount 

specified in sections 606 and 603(b) annually “to reflect a percentage 

103Section 606(a) 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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increase or decrease in construction costs during the preceding 

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. § 606(f). 

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., September 

27, 1960 (office building for Federal Deposit Insurance 

Corporation). It also does not apply to projects involving the United 

States Capitol. B-148004, October 20, 1969. 

Prospectus approval may precede or follow enactment of the 

relevant appropriation. B-95136, October 11, 1979. Limiting language 

in the approval is not legally binding unless incorporated in the 

appropriation providing funds for the project. B-95136, 

February 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, September 27, 1978; B-95136-O.M., December 23, 1975. 

Funds will be available for the project, with or without compliance 

with 40 U.S.C. § 606(a), 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, October 11, 1979; B-95136-O.M., 

December 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. § 606(a), 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 
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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, 

January 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 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., January 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, December 9, 1947: 

“[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 
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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, August 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); B-22714, March 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, August 26, 1940 

(printing of programs and invitations); A-88307, August 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, and quoted in 53 Comp. Gen. at 120, as 

follows: 

“[T]he 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 has been noted earlier under the “duration of 

construction appropriations” heading. 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 
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congressional sanction. 20 Comp. Gen. 272 (1940); 19 Comp. 

Gen. 892 (1940), modified, B-9460, June 11, 1940; B-122221, 

January 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 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., October 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). 
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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);104 A-40231, January 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 wornout 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 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: 

“[A]n 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., August 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, 

November 14, 1969 (duct work, acoustical work, sprinklers, 

electrical fixtures, heating and cooling equipment). Cases holding 

104Regarding 1 Comp. Dec. 33, did someone wager we could not find a case on 

“erecting an outhouse”? You lose. 
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construction appropriations to be the improper source of funds 

include 12 Comp. Gen. 488 (1933) (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., August 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). 

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 derives its authority from several sources: 

• Various provisions of 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 are not part of the Federal 

Property or Public Buildings Acts. Examples are 40 U.S.C. §§ 19 

(GSA “shall have charge of the public buildings and grounds in the 

District of Columbia”); 283 (furniture for new public buildings must 

be procured in accordance with plans and specifications approved 

by GSA); 285 (GSA has exclusive control over public buildings 

outside of the District of Columbia purchased or constructed from 

appropriations under GSA’s control); and 298d (GSA authorized to 

name or rename buildings under its control, even if previously 

named by statute). 

• Section 103 of the 1949 Act, 40 U.S.C. § 753, 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. 

§ 490 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 
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operation, maintenance, and custody of office buildings” owned or 

leased by the government. 

While GSA’s authority is thus broad and comprehensive, there are 

significant exceptions.105 However, unless an agency falls within one 

of these exceptions, has its own specific statutory authority,106 or 

has a delegation from GSA, GSA’s authority is exclusive and the 

agency has no authority to procure building services directly. 

61 Comp. Gen. 658 (1982). 

b. Allocation of Space One of GSA’s functions under the Federal Property and 

Administrative Services Act is “to assign and reassign space of all 

executive agencies in Government-owned and leased buildings in 

and outside the District of Columbia.” 40 U.S.C. § 490(e). See also

40 U.S.C. § 304a. Space assignments should be advantageous in 

terms of economy, efficiency, or national security. 40 U.S.C. § 490(e). 

GSA’s procedures, as well as instructions on when and how to 

submit requests for space and how to appeal unfavorable 

determinations, are contained in the Federal Property Management 

Regulations, 41 C.F.R. Subpart 101-17.1. 

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 

105Some 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 the Federal 

Property and Administrative Services Act under the Leasing heading. Exceptions 

from GSA’s authority under the Federal Property Act are found in 40 U.S.C. 

§§ 472(d) (definition of “property”) and 474. Still others may be contained in various 

agency-specific or program-specific statutes.

106GAO, 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).
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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 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, GSA adopted 

41 C.F.R. § 101-21.601(b), which provides: 

“Federal agencies that require relocation of other agencies because of expanding 

space needs are responsible for funding.” 

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. 

c. Alterations and Repairs A provision of the Public Buildings Act, 40 U.S.C. § 603(a), gives 

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. § 606(a). If the 

alteration requires the acquisition of land, the $1,500,000 applies to 

the combined cost of the alteration and acquisition. 40 U.S.C. 
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§ 603(b). 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, August 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 main headquarters building, 

although exempt from GSA’s custody and control, remains subject to 

40 U.S.C. § 606, although GAO rather than GSA would submit the 

prospectus. 31 U.S.C. § 781(a). 

As a general proposition, GSA is responsible for providing normal 

space needs, including “space alterations, repairs, and 

improvements sufficient to meet the mission requirements of 

occupant agencies.” 41 C.F.R. § 101-20.002-1. 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. § 490(f)(6). 

These special services or “tenant changes” may include such things 

as alterations necessary for the installation of agency program 

equipment, or space adjustments requested by the tenant agency for 

its own convenience within already assigned space. 41 C.F.R. 

§§ 101-20.106(d), (e). Both types of alterations, normal space needs 

and special services, are financed from the Federal Buildings Fund 

established by 40 U.S.C. § 490(f). 41 C.F.R. § 101-21.501. GAO has 

been critical of “augmenting” the Fund by seeking reimbursement 

for items which should have been treated as normal space needs. 

The General Services Administration Should Improve the

Management of Its Alterations and Major Repairs Program, 

GAO/LCD-79-310, 26-29 (July 17, 1979). Examples cited include such 

things as resurfacing a driveway entrance, installing sprinklers, and 

conducting a survey to confirm complaints of inadequate 

ventilation. 

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, 

March 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 
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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 or 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.” Treasury, Postal Service, and General 

Government Appropriations Act, 1995, Pub. L. No. 103-329, § 607, 108 Stat. 2382, 

2417 (1994). 

GSA does not seek prospectus approval on reimbursable alteration 

projects if the requesting agency certifies that its appropriations are 

available without regard to 40 U.S.C. § 606. 41 C.F.R. § 101-19.302. 

This permits some large projects to escape the oversight of the 

public works committees, but Congress has long been aware of 

GSA’s practice. See Repairs and Alterations of Public Buildings by

General Services Administration—Better Congressional Oversight

and Control Is Possible, GAO/LCD-78-335, 23-25 (March 21, 1979). 

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. § 490(f)(2). GSA’s annual appropriations language under 

the Federal Buildings Fund heading is more descriptive, providing 

funds, quoting from GSA’s 1995 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; . . . contractual services incident to cleaning 

or servicing buildings . . . .” Pub. L. No. 103-329, 108 Stat. at 2397 (1994). 

GSA provides a standard level of cleaning services as part of the 

package for which the tenant agency pays rent. 41 C.F.R. 

§ 101-21.301. Section 101-20.102 of the regulations details the 

cleaning and maintenance services included in the standard level. 

The objective is to provide service “equivalent to that normally 

furnished commercially in similar space.” 41 C.F.R. 

§ 101-20.002-1(c). 
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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, August 31, 

1959. Now, the standard level package also includes protective and 

security services to the extent described in 41 C.F.R. § 101-20.103-1. 

Protective services above this standard level may be provided on a 

reimbursable basis under the “special services” authority of 

40 U.S.C. § 490(f)(6). 41 C.F.R. § 101-20.103-2. Other aspects of GSA’s 

authority to protect federal property are found in 40 U.S.C. 

§§ 318, 318b, and 318d. See generally B-105291, November 30, 1976 

(internal memorandum). 

Additional restrictions on the procurement of guard and custodial 

services may appear in the annual Treasury, Postal Service, and 

General Government Appropriation Acts, and they may vary from 

year to year. A provision in the 1995 act prohibits 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. at 2409.107

e. Utilities Another indispensable element of building management is the 

provision of utility services such as electricity, natural gas, water, 

and telecommunications. The Federal Property and Administrative 

Services Act authorizes GSA to prescribe policies for the 

management of public utility services, subject to Office of Federal 

Procurement Policy regulations (40 U.S.C. § 481(a)(1)); procure and 

supply nonpersonal services for executive agencies (40 U.S.C. 

§ 481(a)(3)); and represent its client agencies in negotiations with 

public utilities and in utility regulatory proceedings (40 U.S.C. 

§ 481(a)(4)). Section 481(a) permits exemptions for the Defense 

Department when determined to be “in the best interests of national 

security.” Another provision, not part of the Federal Property Act, 

authorizes GSA to “provide and operate public utility 

communications services serving one or more governmental 

activities, in and outside the District of Columbia, where . . . 

economical and in the interest of the Government.” 40 U.S.C. § 295. 

107The U.S. Code carries the current version as 40 U.S.C. § 490c.
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This has been interpreted to include telecommunication services. 

See 66 Comp. Gen. 58 (1986); B-190142, February 22, 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. § 490(f)(2). 

Absent specific statutory authority108 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., 

September 17, 1963. 

Multi-year utility contracts are authorized by 40 U.S.C. § 481(a)(3), 

which provides that “contracts for public utility services may be 

made for periods not exceeding ten 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, 222-223 (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 

non-tariffed supplier of telephone equipment); 45 Comp. Gen. 59 

(1965). 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”—telecommunications 

(62 Comp. Gen. 569), natural gas (45 Comp. Gen. 59),109 and electric 

power (44 Comp. Gen. 683 (1965)). 

While the multi-year authority of 40 U.S.C. § 481(a)(3) has been 

liberally applied, it is not unlimited. The statute is intended to 

108E.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.”

109A 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. That case 

distinguished 45 Comp. Gen. 59 on several grounds. 70 Comp. Gen. at 49.
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address “incidental utility services needed in connection with 

authorized Government business,” not any project that happens to 

involve utility services. 35 Comp. Gen. 220, 223 (1955). 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, 159-160 (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. § 481(a)(3) 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. 569, 572 (1983). See also 44 Comp. Gen. 683, 688 

(1965); 35 Comp. Gen. 220, 223 (1955). 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. 

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. § 481(a)(3) 

because the government is not obligated beyond the initial 10-year 

period. B-227850, October 21, 1987, aff’d on recons., B-227850.2, 

March 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. Telecommunication 

services are financed from a separate fund established by 40 U.S.C. 

§ 757. Originally designated the Federal Telecommunications Fund, 

it was merged in 1987 with an automatic data processing fund and 
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redesignated as the Information Technology Fund. See 69 Comp. 

Gen. 112, 113 (1989). The Fund is available for 

“expenses . . . and for procurement (by lease, purchase, transfer, or otherwise) for 

efficiently providing information technology resources to Federal agencies and for 

the efficient management, coordination, operation, and utilization of such 

resources.” 40 U.S.C. § 757(b)(2).110 

This, like the Federal Buildings Fund, is a revolving fund. 

Prior to enactment of the Clinger-Cohen Act of 1996,111 Pub. L. 

No. 104-106, Div. D,E, 110 Stat. 186 (1996), GSA had exclusive 

authority to provide “Automatic Data Processing” equipment and 

services (including telecommunications services) under the Brooks 

Automatic Data Processing 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., 65 Comp. 

Gen. 380 (1986) (FIRMR applicability); 69 Comp. Gen. 112 (1989) 

(statistical sampling cost recovery); 70 Comp. Gen. 238 (1991) 

(termination charges). 

The Clinger-Cohen Act of 1996 repealed the Brooks ADP Act. Pub. L. 

No. 104-106, § 5101, 110 Stat. 680. 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 

Circular A-130, “Management of Federal Information Resources”; 

Exec. Order No. 13011, “Federal Information Technology,” July 16, 

1996; 48 C.F.R. Part 39, “Acquisition of Information Technology” 

(1999) (FAR). GSA, however, continues to provide governmentwide 

telecommunications services through contracts which federal 

110It 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.

111So renamed by the Omnibus Consolidated Appropriations Act of 1997, Pub. L. No. 

104-208, Tit. 8, 5808, 110 Stat. 3009 (1996).
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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 

government-owned property. Congress has delegated that authority 

to GSA in 40 U.S.C. § 318a. Many of GSA’s regulations 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. § 101-20.302), and ban certain 

activities while on federal property—such as gambling (41 C.F.R. 

§ 101-20.306) and consumption of alcoholic beverages (41 C.F.R. 

§ 101-20.307), etc. 

Congress also has the authority to control what use is made of 

government property. In addition to the general purpose restrictions 

which permeate appropriations law (see chap. 4 above), 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. § 31, which prohibits the use of any public building in the 

District of Columbia, except the Capitol Building and the White 

House, for any “public function” unless expressly authorized by law. 

Another is 40 U.S.C. § 286: 

“[N]o building owned, or used for public purposes, by the Government of the United 

States, shall be draped in mourning and no part of the public fund shall be used for 

such 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-A.D.); 7876, September 20, 1923. 

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 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. 
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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.112 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. 

The pertinent portions of 40 U.S.C. §§ 490(j) and (k) are quoted 

below: 

 “[(j)] The Administrator is authorized and directed to charge anyone furnished 

services, space, quarters, maintenance, repair, or other facilities (hereinafter 

referred to as space and services), at rates to be determined by the Administrator 

from time to time and provided for in regulations issued by him. Such rates and 

charges shall approximate commercial charges for comparable space and services . 

. . . The Administrator may exempt anyone from the charges required by this 

subsection if he determines that such charges would be infeasible or 

impractical. . . .” 

“[(k)] Any executive agency, other than [GSA], which provides to anyone space and 

services set forth in subsection (j) of this section, is authorized to charge the 

occupant for such space and services at rates approved by the Administrator. . . .” 

Subsection (f)(1)(A) of 40 U.S.C. § 490 directs that user charges 

under subsection (j) be deposited in the Federal Buildings Fund. 

The unquoted portion of subsection (k) authorizes the agency to 

credit the receipts to its own appropriations to the extent of 

recovering the cost of providing the services. Section 7 of the Public 

Buildings Amendments of 1972, uncodified but found as a note 

following 40 U.S.C. § 603, requires that rates established under 

40 U.S.C. §§ 490(j) and (k) be approved by the Office of Management 

and Budget. Agency operating appropriations are available to pay 

the rent by virtue of a recurring general provision appearing in 

112Pub. L. No. 92-313, §§ 3 and 4, 86 Stat. 216, 218-219 (1972), 40 U.S.C. §§ 490(f) 

(Federal Buildings Fund); 490(j) (payment of rent to GSA); and 490(k) (authority of 

other agencies to charge for space and services).
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Treasury-Postal Service appropriation acts, quoted in full under the 

Alterations and Repairs heading earlier in this chapter. 

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, reprinted in 1972 U.S.C.C.A.N. 

2370, 2373. Rent under subsection (j) is to be based on “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 gone largely unmaterialized.113 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., March 29, 1976. 

GSA defines “rent” in simple terms as “the rate charged for GSAcontrolled space.” 41 C.F.R. § 101-21.003-2. Rent is based on 

appraisals performed at 5-year intervals and updated in the 

intervening years by changes in the Consumer Price Index. 41 C.F.R. 

§ 101-21.201(a). According to an early GSA statement, rent is 

designed to cover 

“the value of the space itself plus cleaning, utilities, operation and maintenance of 

elevators and electric 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, 958-959 (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. 

§ 101-21.003-3. Over and above that standard level, services are 

113See Chapter 1 of The General Services Administration’s Rental Rates (Standard

Level User Charge) for Federal Agencies, GAO/LCD-78-329 (May 25, 1978) and 

Chapter 3 of Federal Office Space: Increased Ownership Would Result in Significant

Savings, GAO/GGD-90-11 (December 1989).
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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. 

The law authorizes GSA to charge rent to “anyone” furnished space 

or services, not just other federal agencies. Thus, for example, GSA 

was authorized to charge rent to the National Association of 

Regulatory Utility Commissioners, to which 49 U.S.C. § 10344(f) 

then required GSA to furnish space. B-95136, November 17, 1978. As 

the result of some apparently skillful lobbying, the law was changed 

in 1980 to require the Interstate Commerce Commission (i.e., the 

taxpayers) to pick up the tab. Pub. L. No. 96-296, § 36, 

94 Stat. 793, 826 (1980). 

A federal office building may house a variety of support concessions 

such as blind vending stands operated under the RandolphSheppard Act, Federal Credit Unions, cafeterias, dry cleaning and 

laundry facilities, etc. Since GSA can charge “anyone,” 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., December 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. § 101-21.202. 

GSA’s rental charge also covers assigned parking spaces. Once 

again, since GSA can charge “anyone,” 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 960-961; 55 Comp. Gen. 897 (1976). See also

American Federation of Government Employees v. Freeman, 498 F. 

Supp. 651, 656-657 (D.D.C. 1980) (40 U.S.C. § 490(j) authorizes, but 

does not require, GSA to charge parking fees). We noted above that 
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40 U.S.C. § 490(j) uses the term “anyone.” So does 40 U.S.C. 

§ 490(k).114 Therefore, the tenant agency could charge its employees 

for parking space, but the rates would have to be approved by GSA 

and OMB. 55 Comp. Gen. at 899-900. However, subsection (k) does 

not authorize an agency to collect (and retain) fees from non-agency 

participants in an agency-sponsored conference held in procured 

space. The agency is the “occupant” within the meaning of 40 U.S.C. 

§ 490(k), not the participants. B-190244, November 28, 1977. (This 

does not mean that the agency cannot charge a fee, merely that it 

cannot rely on 40 U.S.C. § 490(k) as authority to credit the money to 

its own appropriation.) 

The purpose of 40 U.S.C. § 490(j) 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. § 490(j) 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 both the 

Treasury-Postal Service appropriation act for any provisions 

directed at GSA and the appropriation act covering the tenant 

agency in question. For example, a provision in GSA’s 1995 

appropriation directs GSA to reflect in its rent rates the reductions 

contained in a particular budget amendment. Pub. L. No. 103-329, 

GSA General Provisions § 5, 108 Stat. 2382, 2404 (1994). 

Restrictions directed at tenant agencies may take various forms. A 

provision imposing a specific dollar limit is discussed in B-204270, 

October 13, 1981. A provision imposing a percentage limitation is 

noted in 55 Comp. Gen. 897 (1976). Two additional types appear in 

the 1995 Labor-Health and Human Services Appropriations Act, 

Pub. L. No. 103-333, 108 Stat. 2539 (1994). Section 207 of the HHS 

general provisions, 108 Stat. at 2561, permanently cancels a specific 

dollar amount of “budgetary resources available . . . for space rental 

charges” in 1995, and directs HHS to allocate the reduction among 

114There is one significant difference. Subsection (j) requires GSA to charge rent; 

subsection (k) merely authorizes other agencies to do so.
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its various accounts with certain exceptions. The operating 

appropriation for the Railroad Retirement Board, 108 Stat. at 2571, 

specifies that none of the funds shall be available to pay charges 

under 40 U.S.C. § 490(j). The precise language of the limitation will 

determine whether it applies only to rent or to other 

reimbursements as well. B-186818, September 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, 

September 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 this book, 

that no government official is authorized to give away government 

property—tangible property, money, legal rights—without specific 

statutory authority. E.g., 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 in 65 Comp. Gen. 722, 724 (1986), the rule is “one of 

public policy, not statutory prohibition.” The public policy which 

the rule reflects—that it is ordinarily not a particularly good idea for 

government officials to 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 
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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. 

To start with, the rule applies 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 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. 

If the contemplated improvement is permanent, the first step is still 

to look for specific statutory authority. If it does not exist, the 

expenditure may nevertheless be authorized if the following tests 

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 have been reiterated in many cases since. 

E.g., 71 Comp. Gen. 4, 5 (1991); 69 Comp. Gen. 673, 675 (1990); 

53 Comp. Gen. 351, 352 (1973); 46 Comp. Gen. 25, 27 (1966). 
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The first test—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, November 19, 

1943; A-65186, October 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’s hard to see how the 

construction of monkey cages in a private zoo would further the 

purposes of a federal agency’s appropriation.115 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 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 element—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. 715, 716 (1956). If a lease or contract is 

115It 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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involved, the cost of the improvements must be “in reasonable 

proportion to the overall cost of the lease or contract price.” 

53 Comp. Gen. 351, 352 (1973). 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 under the Leasing heading, 

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. The statute was repealed in 1988 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 the Economy Act as an independent source of 

authority. 

The third element—principal benefit of 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, October 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”). 
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The fourth and final element—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 Immigration and 

Naturalization Service wanted to erect or repair fences on private 

land to help deter the entry of illegal aliens, it would be necessary 

for the INS 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, October 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, February 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. 4, 6 (1991). 

If these tests 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 former 

Veterans Administration 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 governmentowned portion. 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 
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unimproved property116 and buildings.117 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, 723-724 (1986); 

18 Comp. Dec. 70 (1911); 6 Comp. Dec. 943 (1900); A-33513, 

October 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 couldn’t 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, April 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 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, August 28, 1933.118

The General Services Administration has its own statutory authority, 

discussed generally in 65 Comp. Gen. 722 (1986). Under section 

210(a)(8) of the Federal Property and Administrative Services Act of 

1949, as amended, 40 U.S.C. § 490(a)(8), with respect to any 

11647 Comp. Gen. 61 (1967); 38 Comp. Gen. 143 (1958); 35 Comp. Gen. 715 (1956).

11718 Comp. Gen. 144 (1938); 14 Comp. Gen. 97 (1934); 10 Comp. Gen. 149 (1930); 

5 Comp. Dec. 478 (1899).

118We 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. 
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“building, property, or grounds” under GSA’s jurisdiction, 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.” The total cost 

over the expected life of the lease must be less than the cost of 

alternative space which does not need the work. Id. Work under 

40 U.S.C. § 490(a)(8) is financed from the Federal Buildings Fund, 

40 U.S.C. § 490(f). 

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 R.R. 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 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 
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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” (id. 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. 1960), cert. denied, 363 U.S. 805. 

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 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 
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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, which we have already noted, 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, 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 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. 42 U.S.C. § 241(a)(7). 

Another case involving an exception made for a research project 

improvement is B-96826-O.M., February 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 
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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, February 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 presented a somewhat 

different situation in B-187482, February 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 

considerably more expensive, and that the agreement included 

appropriate safeguards to protect the government’s interest in the 

tower. Accordingly, the purchase was authorized. 
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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 have discussed earlier in 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, August 15, 1960 (access road). The statement 

found almost verbatim in each case is, quoting from B-143536: 

“[I]f 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(1), November 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, March 12, 1956 (similar facts, same 

result).119

The prohibition has also been applied in a case where the 

government technically held fee title extending to the center of a 

119A factual distinction which 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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public street, but had 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, 

October 15, 1954. 

In the case of sidewalks, there is statutory authority for any 

executive agency “to install, repair, and replace sidewalks around 

public buildings, installations, properties, or grounds under the 

control of such agency and owned by the United States,” either 

directly or by reimbursement to the state or local government, in 

accordance with regulations of the General Services Administration. 

40 U.S.C. § 490(i). Prior to the enactment of this general authority, 

some agencies had—and still have—their own comparable agencyspecific 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. § 490(i). 

Subsection (4) of 40 U.S.C. § 490(i) provides that the statute should 

not be construed to “increase or enlarge the tort liability of the 

United States . . . beyond such liability presently existing by virtue of 

any other law.” This of course means primarily the Federal Tort 

Claims Act. Thus, reimbursement by the federal government under 

section 490(i) 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). 

d. Federal Aviation 

Administration 

The Federal Aviation Administration 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). Under this authority, it could, for example, make 

repairs and improvements to flight service stations located on 

premises leased from airport owners or operators. 53 Comp. 
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Gen. 317 (1973).120 See also B-143536, August 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 non-government 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. 

A more recent 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, it can 

be overcome by congressional action that would not be sufficient if 

it were a statutory requirement.121

120The 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, August 16, 1965, GAO held that it was. As noted earlier in the text, the 

Economy Act provision was repealed in 1988. While the percentage limitation no 

longer exists, the FAA statute remains as an independent source of authority. 

121See the discussion of Tennessee Valley Authority v. Hill in Chapter 2.
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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 former Veterans Administration 

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 non-hospital 

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.” 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 benefitting 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 
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course, the 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. Id. 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 

Attorney General and the Comptroller General. E.g., 34 Op. Att’y 

Gen. 320 (1924); 65 Comp. Gen. 339 (1986); 50 Comp. Gen. 63 (1970); 

B-157578, September 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): 

“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 
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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, October 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, April 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). Congress has 

delegated this authority to executive agencies in several statutes, 

the most important of which is the Federal Property and 

Administrative Services Act. 

2. Disposal Under the 

Federal Property and 

Administrative Services Act 

The Federal Property and Administrative Services Act presents 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”: 
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“The term ’excess property’ means any property under the control of any Federal 

agency which is not required for its needs and the discharge of its responsibilities, 

as determined by the head thereof. . . .” 

“The term ’surplus property’ means any excess property not required for the needs 

and the discharge of the responsibilities of all Federal agencies, as determined by 

the Administrator [of GSA].” 40 U.S.C. §§ 472(e) and (g). 

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.122 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, April 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. § 483(b). GSA tells agencies to do this at least annually. 

41 C.F.R. § 101-47.201-2(a)(1). 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. § 483(c). If the property is not 

needed within the agency, it should be reported to GSA as excess. 

41 C.F.R. §§ 101-47.201-2(a)(3), 101-47.202-1. 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. §§ 101-47.201-2(c), (d)(2), (d)(3). 

GSA then has the responsibility of determining if there is a need for 

the property by any other federal agency, government corporation, 

or the District of Columbia, and directing transfer of the property 

accordingly. 40 U.S.C. § 483(a)(1). According to the legislative 

history of the Federal Property Act, detailed in B-101646, 

November 2, 1976 (internal memorandum), 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 

122The definitions do not distinguish between real property and personal property 

and the same general scheme applies to both. Some of the operating provisions 

apply only to one type or the other, however.
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knowledge of the situation in his role as the manager of the Government’s 

property.” B-165868, June 30, 1971. 

GSA calls its procedure “screening.” 41 C.F.R. § 101-47.203-5. If GSA 

finds a “match” and determines that transfer is in the government’s 

best interest, the property is transferred. 41 C.F.R. § 101-47.203-7(b). 

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 OMB. 

40 U.S.C. § 483(a)(1). Pursuant to agreement between GSA and 

OMB, the Federal Property Management Regulations require 

reimbursement of 100 percent of estimated fair market value, except 

that if the property will replace other property, the amount to be 

reimbursed is the difference between the estimated fair market 

value of the property to be replaced and the estimated fair market 

value of the property to be transferred. 41 C.F.R. 

§ 101-47.203-7(f)(2)(i). The transfer is made without reimbursement 

if it is specifically non-reimbursable by statute, or if GSA, with 

OMB’s approval, grants an exception. 41 C.F.R. 

§ 101-47.203-7(f)(2)(ii). 

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 under the Federal Property Act 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 
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continue paying the taxes. 32 Comp. Gen. 164 (1952); 36 Comp. 

Gen. 713 (1957); 34 Comp. Gen. 319 (1955). See also Rohr Aircraft

Corp. v. County of San Diego, 362 U.S. 628 (1960), and Board of

County Commissioners of Sedgwick County v. United States, 

105 F. Supp. 995 (Ct. Cl. 1952) (addressing the issue under the 

Surplus Property Act of 1944, the predecessor of the Federal 

Property Act). 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, September 6, 1979 (internal memorandum 

discussing transfer to Amtrak). 

b. Surplus Property If no other agency needs the property, 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 has “supervision and direction over the disposition of 

surplus property.” 40 U.S.C. § 484(a). 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 such action as it deems necessary or 

proper to dispose of such property.” 40 U.S.C. § 484(c). GSA’s 

regulations specify when GSA must act as the disposal agency and 

when the “holding agency” may do so. 41 C.F.R. § 101-47.302. Absent 

some applicable statutory exception, 40 U.S.C. § 484 is the exclusive 

means for the government to divest itself of a property interest. 

United States v. 434.00 Acres of Land in the County of Camden,

Georgia, 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. § 484(c) “suggests 

broad power.” United States v. 1.33 Acres, 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 
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highway and the parties could not come to voluntary terms.) GSA 

may also, under the broad authority of 40 U.S.C. § 484, authorize the 

interim nonfederal use of surplus property by lease or permit. See

41 C.F.R. § 101-47.312; B-101646, October 11, 1977 (internal 

memorandum). 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 (property acquired by voluntary 

purchase); 34 Comp. Gen. 374 (1955) (donation); B-165511, 

March 21, 1978 (eminent domain). 

With certain exceptions, the disposal agency should have the 

property appraised. 41 C.F.R. § 101-47.303-4. GSA treats the 

appraisal results as confidential so as not to influence the 

government’s ability to sell at a favorable price. 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, August 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 “shall be made after publicly advertising for bids.” 

40 U.S.C. § 484(e)(1). 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. 

§ 484(e)(2)(C); B-212285, November 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, 

March 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). 
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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, January 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, November 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, February 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, 744-748 (1995)(discussing the theories of misrepresentation, 

mutual mistake, and unilateral mistake in the context of government 

real property sales).123

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, i.e., 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, January 5, 1967, 

aff’d on recons., B-160256, October 18, 1968. Once an offer has been 

accepted, earnest money deposits provided by other bidders must 

be returned. 41 C.F.R. § 101-47.305-3. 

123See 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); Hartle v. United States, 22 Cl. Ct. 843 (1991).
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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 “such competition as is feasible under the circumstances.” 

40 U.S.C. § 484(e)(3). 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. 

40 U.S.C. § 484(e)(3)(G). For an example of a negotiated exchange 

under this authority, see B-165868, November 19, 1971; B-165868, 

June 30, 1971; and B-165868, September 29, 1970 (all involve the 

same exchange). Another situation in which disposal may be 

negotiated is when 

“the disposal will be to States, Territories, possessions, political subdivisions 

thereof, or tax-supported agencies therein, and the estimated fair market value of 

the property and other satisfactory terms of disposal are obtained by negotiation.” 

40 U.S.C. § 484(e)(3)(H). 

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 

subsection (H), GSA is not required to consider offers from 

nonpublic sources. 57 Comp. Gen. 823 (1978). While subsection (H) 

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); B-217356, April 22, 1985 

(internal memorandum). Since the use of subsection (H) 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, with exceptions 

specified in the statute, prepare “an explanatory statement . . . of the 

circumstances of each disposal,” and transmit the statement “to the 

appropriate committees of the Congress in advance of such 

disposal.” 40 U.S.C. § 484(e)(6). 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 who will in turn submit it to the 

committees. 41 C.F.R. § 101-47.304-12(d). Nothing in the statute 

purports to make the validity of a disposal in any way contingent 
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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. 

While the discussion in B-132099 was hypothetical, an actual 

situation occurred in B-146494, December 4, 1961, concerning the 

sale of an ammonium 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.” 

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, November 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 
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construct a building on that property to be leased to a different 

agency.124

Subsection (k) of 40 U.S.C. § 484 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. § 484(k)(1); 41 C.F.R. 

§ 101-47.308-4. These are called “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 

(k)(1) procedures. 40 Comp. Gen. 455 (1961); B-157885, November 8, 

1965. However, this is not available where the sale has been 

consummated and the purchase price paid. B-162194, August 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 agreement and was therefore 

unauthorized. 

Another subsection authorizes GSA to assign surplus property to the 

Interior Department for reconveyance for public park or recreation 

purposes. 40 U.S.C. § 484(k)(2); 41 C.F.R. § 101-47.308-7. 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 authorizes GSA to convey to states or 

municipalities, without monetary consideration, surplus real 

property which is suitable and desirable for use as a historic 

124The 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.
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monument. 40 U.S.C. § 484(k)(3); 41 C.F.R. § 101-47.308-3. GSA may 

authorize use of the property for revenue-producing activities. 

40 U.S.C. § 484(k)(3)(A); 60 Comp. Gen. 158 (1981). As with the 

other subsections, subsection (k)(3) 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. § 485, as effectively 

modified by 16 U.S.C. § 460l-5(a). Subsection (a) of 40 U.S.C. § 485 

provides that all proceeds from any transfer of excess property or 

sale or other disposition of surplus property, except as otherwise 

provided in the remaining subsections of section 485, 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. § 485(c). Another, subsection 

485(d), 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. Subsection 485(e) 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 Public Law 88-578, the Land and Water 

Conservation Fund Act of 1965. Section 2(b) of that law, 78 Stat. 897, 

899, as codified at 16 U.S.C. § 460l-5(a), requires deposit in the Land 

and Water Conservation Fund of: 

“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. § 485 which themselves provide exceptions 

to the miscellaneous receipts requirement of 40 U.S.C. § 485(a). 

Second, it does not apply to provisions in appropriation acts like the 

following provision which appeared in the Independent Offices 

Appropriations Act of 1963, Pub. L. No. 87-741, 76 Stat. 716, 725, 
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under the heading “Operating Expenses, Utilization and Disposal 

Service [GSA]”: 

“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 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. The 

Federal Property Management Regulations reflect this change. 

41 C.F.R. § 101-47.307-6. 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, December 10, 1946. 

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. 

§ 485(c), 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 
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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 A statute, 40 U.S.C. § 485a, provides: 

“[F]rom the proceeds of sales of . . . public property of any kind, before being 

deposited into the Treasury, either as miscellaneous receipts . . . or to the credit of 

the appropriations to which such proceeds are by law authorized to be made, there 

may be paid the expenses of such sales so as to require only the net proceeds of 

such sales to be deposited into the Treasury . . . .” 

This statute originated in 1896. 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). 

The problem is that 40 U.S.C. § 485a is in apparent conflict with 

subsequently enacted statutes. It was amended in 1951 (65 Stat. 707) 

to insert the introductory clause, “Subject to applicable regulations 

under the Federal Property and Administrative Services Act of 1949, 

as amended.” In more direct conflict is 40 U.S.C. § 485(a), requiring 

deposit in the Treasury of “all proceeds” except as provided in the 

remaining subsections of that section. In addition, 16 U.S.C. 

§ 460l-5(a) requires that “all proceeds” be deposited in the Land and 

Water Conservation Fund except for the situations noted above. 

Thus, 40 U.S.C. § 485a refers to “net proceeds” while 40 U.S.C. 

§ 485(a) and 16 U.S.C. § 460l-5(a) specify “all proceeds.” 

A 1947 decision, 26 Comp. Gen. 857, considered the relationship of 

40 U.S.C. § 485a to a provision in the Surplus Property Act of 1944, 

the predecessor of the Federal Property and Administrative Services 

Act, which also required deposit in the Treasury of “all proceeds” 

from property disposals. The decision found the two provisions to 

be in “obvious conflict,” and held that the Surplus Property Act 
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controlled as the latest expression of Congress. 26 Comp. Gen.

at 859. 

Although there appears to be no decision considering the same 

question in relation to the current statutes, it has been suggested 

that 40 U.S.C. § 485a is inconsistent with the current statutes and 

has been “superceded.” See B-232827, October 19, 1988 (internal 

memorandum considering the conflict in relation to personal 

property). 

The conflict with 40 U.S.C. § 485(a) covers disposals under the 

Federal Property and Administrative Services Act; the conflict with 

16 U.S.C. § 460l-5(a) covers surplus real property and related 

personal property. For disposals not within these areas of conflict, 

40 U.S.C. § 485a continues to apply. 28 Comp. Gen. 594 (1949); 

B-81635, December 9, 1948. 

e. Disposal Under Other 

Authorities 

That the Federal Property and Administrative Services Act was 

intended to be the pre-eminent law in the areas it covers is 

evidenced by the first sentence of 40 U.S.C. § 474: 

“The authority conferred by this Act shall be in addition and paramount to any 

authority conferred by any other law and shall not be subject to the provisions of 

any law inconsistent herewith . . . .” 

Be that as it may, the Federal Property Act is not the only disposal 

authority. Exceptions to the Federal Property Act’s authority tend to 

be of two types: (1) general provisions applicable to an agency or 

program, and (2) statutes addressing a specific piece of property. 

As to the first type, a 1992 GAO study identified 17 agencies with 

authority to dispose of real property. Real Property Dispositions: 

Flexibility Afforded Agencies to Meet Disposition Objectives Varies, 

GAO/GGD-92-144FS (September 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 exempt from 

the Federal Property Act by its terms, such as public domain lands. 

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, 
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re-appeals, 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. 

For property which would otherwise be within the scope of the 

Federal Property Act, language such as “notwithstanding any other 

provision of law” will provide the necessary exemption. 

B-178205.80, March 16, 1976. Other statutes use more specific 

exempting language, such as “without regard to the laws governing 

the disposition of excess or surplus property of the United States.” 

An example is 7 U.S.C. § 1985(c), applicable to certain Department 

of Agriculture activities. Sale under this provision is to be “at the 

best price obtainable for cash or on secured credit.” Id. Under this 

language, one court has held that giving a preference to cash bids 

without providing advance notice of that policy either by regulation 

or in the solicitation constituted arbitrary and capricious conduct. 

Simmons v. Block, 782 F.2d 1545 (11th Cir. 1986). The remedy was to 

re-advertise with full disclosure of the preference. Id. at 1550. A 

similiar provision from the housing laws is 12 U.S.C § 1750c(f), 

applied in Montreal Securities, Inc. v. United States, 329 F.2d 956 (Ct. 

Cl. 1964). 

The Internal Revenue Service is authorized to sell property seized 

under a tax levy. 26 U.S.C. § 6335. 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. 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 second type of exception consists of statutes authorizing or 

directing the disposal of a particular piece of property in accordance 

with specified standards or procedures. GSA calls these “special 

statutes,” and recognizes that they are not governed by the Federal 
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Property Act. 41 C.F.R. § 101-47.301-3. 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. 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,” GAO concluded 

that the Fire Administration could dispose of the site without regard 

to the requirements of the Federal Property and Administrative 

Services Act. 

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 (“The power of disposal was early 

construed to embrace leases”); United States v. Gratiot, 39 U.S. 

(14 Pet.) 526 (1840); 34 Op. Att’y Gen. 320, 322 (1924); 50 Comp.

Gen. 63 (1970); 14 Comp. Gen. 169 (1934); B-191943, October 16, 

1978. Accordingly, a federal agency needs statutory authority in 

order to “outlease” (lease government-owned 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 Government Space Leased to

Commercial Activities by Agencies Other Than the General Services

Administration, LCD-78-337 (October 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 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 the Federal Property and 

Administrative Services Act. Under 40 U.S.C. § 490(a)(13), GSA may 

lease federal buildings sites, including improvements, at a “fair 

rental value,” until they are needed for construction purposes. While 

this at first blush may seem like fairly short-term authority, a site 

may not be needed for construction for decades. E.g., B-168096, 

August 5, 1974 (site had been leased to commercial parking 

operators since 1930s). GSA is also authorized to lease space to 

“persons, firms, or organizations engaged in commercial, cultural, 

educational, or recreational activities,” as defined in 40 U.S.C. 

§ 612a, at rates equivalent to the prevailing commercial rate for 

comparable space. 40 U.S.C. §§ 490(a)(16) and (a)(17). A provision 

which is not part of the Federal Property Act, 40 U.S.C. § 304a, 

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 emergency.” City of San
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Francisco v. United States, 443 F. Supp. 1116, 1122 (N.D. Cal. 1977), aff’d, 615 F.2d 

498 (1980). 

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, March 10, 1972). They have leased water treatment and 

transmission facilities to local water districts who could, after 

supplying the needs of the military reservation, sell the remaining 

capacity. B-162141, October 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).125 And they have 

used it to grant rent-free use, except for maintenance and service 

charges, to other government agencies. B-119724-O.M., April 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(n)), 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 the General Accounting Office (31 U.S.C. § 782). 

125When 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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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 (1962), applied the 

same principle where the government was the lessor. In another 

case, however, the United States 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. § 303b, 

although the clear trend is away from miscellaneous receipts. Rent 

received by GSA under the subsections of 40 U.S.C. § 490 cited 

above is deposited in the Federal Buildings Fund. 40 U.S.C. 

§§ 490(a)(13) and (a)(18). 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 the General 

Accounting Office 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” may 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., 

January 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. 
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• Income received by the Forest Service from activities in the national 

forests. 16 U.S.C. §§ 499 and 500. 

• 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, January 13, 1982. 

(2) 40 U.S.C. § 303b

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, 47 Stat. 382, 412, 40 U.S.C. § 303b: 

“[E]xcept as otherwise specifically provided by law, the leasing of buildings and 

properties of the United States shall be for a money consideration only, and there 

shall not be included in the lease any provision for the alteration, repair, or 

improvement of such buildings or properties as a part of the consideration for the 

rental to be paid for the use and occupation of the same. The moneys derived from 

such rentals shall be deposited and covered into 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.” 

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. 
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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). Thus, 42 Comp. Gen. 650 found the statute applicable to a 

proposal to permit a nonprofit organization to install a coinoperated audio-tour system in the National Zoo, the proceeds to be 

used to finance a teach-training program and the preparation of a 

guidebook on the zoo. 

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. 303b.” 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.” 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. § 303b. 

As noted, Congress has been willing to grant exceptions from 

40 U.S.C. § 303b when considered desirable. For example, under 

10 U.S.C. § 2667(b)(5), outleases by military departments. 

“may provide, notwithstanding [40 U.S.C. § 303b], or any other provision of law, for 

the improvement, maintenance, protection, repair, or restoration, by the lessee, of 

the property leased, or of the entire unit or installation where a substantial part of it 

is leased, as the payment of part or all of the consideration for the lease.” 
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There is no formula for determining how much is a “substantial 

part.” The “substantial part” clause was included “for the express 

purpose of precluding leases of a minor portion of a plant or 

building from being used as a subterfuge to obtain maintenance of 

an entire installation or building without charge to appropriations.” 

B-141157, August 14, 1967. Within this framework, the exception 

permits “extraordinary as well as ordinary items of maintenance.” 

B-145738-O.M., January 18, 1962. 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 repair or restoration “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, December 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. § 303b. Also prohibited 

by section 303b 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). Although not specified in the decision, it is hard to see how it 

could be argued that the property to be leased was “not . . . needed 

for public use,” one of the statutory conditions for leasing under 

10 U.S.C. § 2667. 

As the language of 40 U.S.C. § 303b 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, February 5, 1954; B-140397-O.M., August 20, 1959. The 

structure of 10 U.S.C. § 2667, for example, bears this out. Subsection 

(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”; subsection (b)(5) then provides 

the specific exemption from 40 U.S.C. § 303b. General authority was 

enough in B-159719, March 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. 
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Some other specific exceptions are 16 U.S.C. § 20f and 40 U.S.C. 

§ 303c (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. 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 Federal Lands: Improvements

Needed in Managing Short-Term Concessioners, GAO/RCED-93-177 

(September 1993); Federal Lands: Improvements Needed in

Managing Concessioners, GAO/RCED-91-163 (June 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, January 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, March 25, 1944; A-95642, November 18, 1943; A-95642, 

March 19, 1943. 

A related issue is the extent to which 40 U.S.C. § 303b applies to 

concession agreements. The following passage from 41 Comp. 

Gen. 493, 495 (1962) illustrates GAO’s general approach: 
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“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 parks is a thriving business which is 

becoming increasingly dominated by large corporate concessioners.” National

Parks and Conservation Association v. Kleppe, 547 F.2d 673, 675-676 (D.C. Cir. 1976) 

(footnotes omitted). 

Originally, both GAO and 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); 

B-157/B-32837, August 20, 1952. The 1962 decision quoted above, 

41 Comp. Gen. 493, also found 40 U.S.C. § 303b applicable to certain 

Park Service concession contracts. A few years later, in 1965, 

Congress enacted the National Park System Concessions Policy Act, 

16 U.S.C. §§ 20-20g. Section 7 of that Act, 16 U.S.C. § 20f, provides a 

specific exemption from 40 U.S.C. § 303b for the National Park 

Service. 

The Park Service legislation gives a concessioner who acquires or 

constructs improvements a “possessory interest” in those 

improvements, consisting of “all incidents of ownership except legal 

title” which, of course, remains in the United States. 16 U.S.C. § 20e. 

This provision recognizes 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 permits encumbrance to 

enable a new concessioner to finance the purchase of an existing 

concession. 57 Comp. Gen. 607 (1978). 

In 64 Comp. Gen. 217 (1985), GAO reviewed the concession contract 

between GSA and Guest Services, Inc. (GSI), which operates 

cafeterias in government buildings in Washington. While GSA 

charges rent to the tenant agency for the space the cafeteria 
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occupies, it does not charge rent to GSI. The contract requires 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. § 303b. 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 220-221. 

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. § 303b. 

b. Granting of Revocable License A question that arose with great frequency during the early decades 

of the 20th 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. 

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.” Id. 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 
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constitutional right to compensation. E.g., Acton v. United States, 

401 F.2d 896 (9th Cir. 1968), cert. denied, 395 U.S. 945 (1969); 

Osborne v. United States, 145 F.2d 892 (9th Cir. 1944). 

Based on application of the rule, the following activities were found 

authorized: 

• 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, November 19, 1970.126

• 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, October 16, 1978. The question was 

the extent to which the Bureau of Land Management 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 

126The decision doesn’t specify what was the “purpose useful or beneficial to the 

government,” but we’re sure there was one.
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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 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, February 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. § 490(a)(17), added by the Public 

Buildings Cooperative Use Act of 1976, Pub. L. No. 94-541, § 104(a), 

90 Stat. 2505, 2506. It authorizes the General Services 

Administration— 

“to make available, on occasion, or to lease at such rates and on such other terms 

and conditions as the Administrator deems to be in the public interest, auditoriums, 

meeting rooms, courtyards, rooftops, and lobbies of public buildings to persons, 

firms, or organizations engaged in cultural, educational, or recreational 

activities . . . that will not disrupt the operation of the building.” 

The terms “cultural,” “educational,” and “recreational” are defined in 

40 U.S.C. § 612a. GSA’s implementing regulations are found at 

41 C.F.R. Subpt. 101-20.4. Permits may not be issued for more than 

30 calendar days, but they are renewable upon submission of a new 

application. 41 C.F.R. § 101-20.402(a). 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.” 41 C.F.R. 

§ 101-20.407(a). 
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4. Adverse Possession The term “adverse possession” refers to a process whereby one can 

obtain title to someone else’s property by “open and notorious” 

possession for a period of time prescribed by state law. See Black’s 

Law Dictionary 54 (7th ed. 1999). The time period is commonly 

20 years, although there is variation. 

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., 

United States v. Pappas, 814 F.2d 1342, 1343 n.3 (9th Cir. 1987); 

Sweeten v. U.S. 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. § 1068.127 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 

127A 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.
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government land.128 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, and who has either made 

valuable improvements to the land or placed part of it under 

cultivation. 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. 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. 

Conveyance is mandatory to a “class I” claimant, discretionary to a 

“class II” claimant. 

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 

128See M.H. Schwarz, Comment, A Practitioner’s Guide to the Federal Color of Title

Act, 20 Natural Resources Journal 681 (1980).
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F.2d 443, 446 n.4 (9th Cir. 1990) (Color of Title Act not applicable to 

land on military reservation).
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16

A. Boards, Committees, and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5

2. Title 31 Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-8

a. 1842: The First Attempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-9

b. 1909: The Tawney Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-11

c. 1944: The Russell Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-15

3. Interagency Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-16

a. Joint Funding of Common-Interest Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-16

b. 1945: The First Interagency Funding Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18

c. Appropriation Act Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-20

4. The Federal Advisory Committee Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-25

a. Overview and Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-25

(1) Definition and specific exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-27

(2) Advisory versus operational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-30

(3) Who is being advised? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-31

(4) “Established or utilized” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-33

(5) Other factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-35

b. Creation and Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-38

(1) Statutory committees: creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-39

(2) Statutory committees: funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-43

(3) Committees established by the executive branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-50

(4) Donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-56

B. Government Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-59

1. Introduction: The Theory and the Controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-59

2. The Problem of Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-68

a. Government Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-68

b. Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-70

c. Federally Chartered Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-73

d. Federally Funded Research and Development Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-81

e. Summing Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-85

3. Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-87

a. Historical Background and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-88

b. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-93

4. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-101

a. Government Corporation Control Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-101

(1) Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-101

(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-102

(3) Budget provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-105

(4) Other financial controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-107

(5) Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-109
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b. Appointment and Control of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-113

5. Sources of Funds and Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-119

a. Types of Financing: Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-119

(1) Direct appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-119

(2) Federal borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-121

(3) Federal ownership of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-124

b. Types of Financing: Private . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-125

(1) Sources of private financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-125

(2) Market perception of implied backing by United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-128

(3) Statutory controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-129

6. Fiscal Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-130

a. Account Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-130

b. Status of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-134

c. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-137

(1) “Character and necessity” provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-137

(2) “Without regard” clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-141

(3) Laws expressly applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-143

(4) Appropriation act provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-145

(5) Other Title 31 provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-147

d. Program Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-150

(1) Commodity Credit Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-152

(2) Bonneville Power Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-155

(3) Amtrak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-159

7. Application of Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-163

a. Civil Service Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-164

b. Procurement Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-170

(1) 41 U.S.C. § 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-171

(2) Federal Property and Administrative Services Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-171

(3) Office of Federal Procurement Policy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-172

(4) Federal Acquisition Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-172

(5) Competition in Contracting Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-173

(6) Other statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-174

c. General Management Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-175

(1) Inspector General Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-175

(2) Federal Managers’ Financial Integrity Act of 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-176

(3) Chief Financial Officers Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-177

(4) Government Performance and Results Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-177

(5) Government Management Reform Act of 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-177

(6) Federal Financial Management Improvement Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 17-178

d. Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-178

e. Freedom of Information, Privacy Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-180

f. Printing and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-182
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g. Criminal Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-184

8. Claims and Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-185

a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-185

(1) Claims settlement authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-185

(2) Federal Tort Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-186

(3) Contract Disputes Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-189

(4) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-190

(5) Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-191

(6) Prompt Payment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-192

(7) False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-193

(8) Interagency claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-194

b. Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-195

c. Litigation in the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-199

(1) Sovereign immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-199

(2) Sue-and-be-sued clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-199

(3) The Tucker Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-204

(4) Liability for Costs and Remedies of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-206

(5) Sovereign Immunity from State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-209

(6) Litigation authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-213

9. Termination of Government Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-215

C. Nonappropriated Fund Instrumentalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-217

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-217

a. Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-218

b. Defining the Nonappropriated Fund Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-223

2. Legal Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-226

a. Authority for Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-226

b. Relationship to the United States Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-227

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

Instrumentalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-230

a. Self-Supporting or Subsidized? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-230

b. Appropriated Funds for Morale and Welfare: The Early Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 17-230

c. The Current Trend: Use of Appropriated Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-231

d. Other Issues in Appropriated Fund Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-238

e. Borrowing by Nonappropriated Fund Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-240

4. Transactions with Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-241

a. Economy Act and Intra-Agency Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-241

b. Contracting to Sell Goods and Services to Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-242

c. Authority under 10 U.S.C. § 2482a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-244

5. Nonappropriated Fund Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-245

a. Federal Procurement Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-245

b. Use of Federal Agency Procurement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-246
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6. Debts Due Nonappropriated Fund Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-247

7. Nonappropriated Fund Activity Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-248

8. Management of Nonappropriated Fund Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-249

a. Regulation and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-249

b. Authority to Audit NAFIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-250

(1) GAO Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-250

(2) Other Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-251

(3) Settlement of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-251

(4) Bid Protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-252

9. Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-253

a. Immunity From State and Local Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-254

b. Immunity From Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-254

c. Payment of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-256

10. Status of Nonappropriated Fund Activity Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-257

a. Applicability of Civil Service Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-258

(1) Civil Service Reform Act of 1978 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-259

(2) Other Employment Related Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-262

D. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-269

1. Federal Funds and Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-271

a. Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-272

b. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-273

c. Congressional Prerogatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-274

2. The Government as Trustee—Creation of a Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-275

a. Property of Others Controlled by the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-275

b. Trust Funds Designated by Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-282

c. Donated Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-284

3. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-286

a. Permanent Appropriation Repeal Act, 1934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-286

b. Available Uses of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-287

(1) Donated funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-287

(2) Property of others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-289

(3) Statutory trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-290

c. Intergovernmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-292

4. Concepts of Amount and Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-293

5. Duty to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-296

6. Liability for Loss of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-298

7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-300

a. Setoff and Levy against Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-300

b. Unclaimed Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-301

8. Federal Trust Funds and the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-302
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Chapter 17

Miscellaneous Topics Chapte1r

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 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. As we will see later, the Federal Advisory 

Committee Act 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.

• Membership: The entity may consist entirely of government officers 

or employees, entirely of nongovernment parties, or some of each.

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 Fourth Branch. Id. 
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• 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 20th 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 the 

Federal Advisory Committee Act (FACA), 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 the 

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 (1972), reprinted in

1972 U.S.C.C.A.N. 3491, 3492. 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 1 (1994). On February 10, 1993, 

President Clinton issued Executive Order No. 12838, directing 

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., 2d 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).
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executive branch departments and agencies to terminate at least 

one-third of the “advisory committees subject to FACA (and not 

required by 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. GSA Report cited above, at 1.5

The practice of creating and using these miscellaneous boards and 

commissions is not without controversy. One critic, not wholly 

without justification, says that the government “is literally drenched 

in advisory committees,” and that “today there is a committee for 

almost any subject the mind of man can conceive.”6

 Yet, counters 

another, “Surely they must have something important to offer to 

deserve such popularity. And they have.”7

 The House Committee on 

Government Operations explained the reason for their popularity:

“The advisory body creates a contribution by the governed to the Government. It 

provides a means by which the best brains and experience available in all fields of 

business, society, government and the professions can be made available to the 

Federal Government at little cost. Our Government and leaders are continually in 

need of advice on a variety of problems at all times in their attempts to find answers 

to the problems of our increasingly diversified and complex society. With the 

increased size and responsibilities of government, the number of advisory and 

interagency committees has also grown.”8

5

Although the number was to drop still further, GAO found that the costs and 

number of members per committee had increased. Federal Advisory Committee

Act: Overview of Advisory Committees Since 1993, GAO/T-GGD-98-24 

(November 5, 1997) (congressional testimony).

6

Donald Lambro, The Federal Rathole 23-24 (1975).

7

David S. Brown, The Management of Advisory Committees: An Assignment for the

’70’s, 32 Pub. Ad. Rev. 334 (1972).

8

H.R. Rep. No. 91-1731, supra note 1, at 4.
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A somewhat more cynical view comes from the pen of Herbert 

Hoover:

“There is no more dangerous citizen than the person with a gift of gab, a crusading 

complex and a determination to ’pass a law’ as the antidote for all human ills. The 

most effective diversion of such an individual to constructive action and the 

greatest silencer on earth for foolishness is to associate him on a research 

committee with a few persons who have a passion for truth—especially if they pay 

their own expenses. I can now disclose the secret that I created a dozen committees 

for that precise purpose.”9

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

“(C) for the detail or cost of personal services of an officer or employee 

from an executive agency in connection with that group; and

9

The Memoirs of Herbert Hoover: 1920-33 281, quoted in Thomas R. Wolanin, 

Presidential Advisory Commissions—Truman to Nixon 3-4 (1975).
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“(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, which comprises the so-called “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 above quotation from Henry Clay 

is from this debate.) 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); 

subsections (c)(2) and (c)(3) are the exceptions.

Initially, this attempt was successful. The Attorney General had 

occasion to consider the statute less than two 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 

with “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 
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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 began with a 1915 decision of 

the Comptroller of the Treasury who 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,—

“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 443-444.

The 1842 attempt to restrict funding for boards and committees was 

further weakened by a distinction alluded to in an early GAO 

decision. This distinction, between a group of persons acting 

individually and a group acting collectively, would be invoked under 

all subsequent legislation on this subject. 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 his 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 
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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., August 22, 

1922.10

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.11 The following year, Congress 

gave the Commission a permanent statutory basis in what is now 

40 U.S.C. § 104. Before doing that, however, disturbed over the 

President’s willingness to create such bodies without first obtaining 

congressional approval, it 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 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 two months after it was enacted, the Attorney 

General held 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); 

8 Comp. Gen. 294 (1928); B-79195, September 30, 1948. As the 

Attorney General stated in another opinion, it would make no sense 

10The 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.

11Bybee, supra note 4, at 63-65.
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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 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 this statute is the meaning of “authorized by 

law.” Once again, the Attorney General took the lead, adopting 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.12 The difficulty with this divergence was that the Attorney 

General’s conclusion was supported by some pretty strong 

legislative history (27 Op. Att’y Gen. at 437). Finally, in 22 Comp. 

Gen. 140 (1942), the Comptroller General reviewed this legislative 

history, repudiated the earlier “specific authority” decisions, and 

adopted the Attorney General’s “authorized in a general way” 

formulation.

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 

12E.g., 11 Comp. Gen. 331 (1932); 5 Comp. Gen. 231 (1925); A-33870, October 29, 

1930; A-16348, November 23, 1926. We say “inexplicably” because other decisions 

issued during this time period recognized, and purported to agree with, the 

Attorney General’s conclusion. See 11 Comp. Gen. 495, 497 (1932); A-23238, 

June 20, 1928.
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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, April 27, 1954, at 4.13 

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, August 14, 1945; 6 Op. Off. Legal Counsel 541, 549 

(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 consultation 

statute could be viewed as furnishing the necessary authority.

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).

13A more recent 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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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, November 8, 

1943. See also B-116975, April 27, 1954.

Section 1346(a)(1) does not override 31 U.S.C. § 1301(a), the 

purpose statute. B-182398(1), March 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, 

December 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. A case previously cited, B-116975, April 27, 1954, involved 

three people inspecting coffee for the Army. It was significant that, 

although the three conducted their inspections independently, the 

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).14

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 if their creation was authorized 

(“in a general way”), or if Congress appropriated funds for that 

purpose.

146 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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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.”15 This third 

attempt at congressional control was the so-called Russell 

Amendment, Pub. L. No. 358, 78th Cong., § 213, 58 Stat. 361, 387. 

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.”

Section 213’s sponsor 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.

“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 

subsection (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. 58 Stat. 387.

As had happened with its predecessors, administrative 

interpretations have narrowed the Russell Amendment’s scope and 

15Wolanin, supra note 9, at 66.
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impact. “Specific appropriation” does not mean that the 

appropriation has to mention the body by name. Inclusion of an item 

in an agency’s budget justification, followed by a lump-sum 

appropriation which does not prohibit the item, is regarded as a 

“specific appropriation” for purposes of the Russell Amendment. 

24 Comp. Gen. 241 (1944); B-44719, October 7, 1944.16

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, November 7, 1963 (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 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.

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. 

16A question which does not appear to have been specifically addressed is whether 

the cases liberally construing 31 U.S.C. § 1347 can be said to have superseded, at 

least implicitly, the “specific means specific” approach of the cases under 31 U.S.C. 

§ 1346(a)(2), such as 4 Op. Att’y Gen. 248 (1843). 
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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.

The 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—i.e., 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, August 20, 1952; 

B-51145, September 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 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 available for the object in question. B-182398, 

March 29, 1976. In other words, joint or interagency funding may not 
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be used to expand the availability of any of the participating 

appropriations. Once you cross this threshold, 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, August 20, 1952.

b. 1945: The First Interagency 

Funding Statute

Earlier in this section, we described the Russell Amendment, 

31 U.S.C. § 1347. Less than a year after the Russell Amendment, 

Congress enacted section 214 of Pub. L. No. 49, 79th Cong., 59 Stat. 

106, 134. Now codified at 31 U.S.C. § 1346(b), it 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, since 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);17 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 common to executive 

agencies when the group includes a representative of the agency.” 

The original language, which governs in a case like this,18 was 

“authorized activities of common interest to such departments and 

establishments and composed in whole or in part of representatives 

thereof.” 59 Stat. 134. 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.

1749 Comp. Gen. 305 was erroneously overruled in part by 54 Comp. Gen. 1055 

(1975), and reinstated by 56 Comp. Gen. 572 (1977).

18See, e.g., Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 227 (1957).
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Also, the current language would seem to require that the group 

include at least one representative from every agency participating 

in the funding. 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, December 28, 1962. 

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, January 9, 

1963.

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, November 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 could, upon making the 

standard “necessary expense” determination, use its appropriated 

funds to finance its share of something called the Radio Technical 

Commission for Aeronautics, 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 since 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, the Secretaries of 

Agriculture, Interior, Commerce, Labor, and Health, Education and 

Welfare, plus some smaller agencies. Since 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, March 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., April 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, December 14, 1945.

c. Appropriation Act Provisions Each of the Title 31 provisions discussed thus far in this section 

entered the scene in the form of a permanent general provision 

contained in an appropriation act. In addition, appropriation acts 

may contain other relevant provisions, which may vary from agency 

to agency or year to year.

One 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.

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 appropriations acts for 1969. In 1972, it was inserted in the 
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Treasury-General Government Appropriations Act and made 

governmentwide (“this or any other act”). This history is outlined in 

B-147637-O.M., December 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 1998 provision 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.” Treasury 

and General Government Appropriations Act, 1998, Pub. L. No. 105-61, § 611, 

111 Stat. 1272, 1310 (1997). 

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 1996.19 

Section 61120 does not apply to a government corporation statutorily 

authorized to determine the nature and character of its 

expenditures. B-174571, January 5, 1972 (FDIC). 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 611 would not inhibit contributions by either 

body to the President’s Commission on Financial Structure and 

Regulation.

GAO’s first encounter with section 611 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, since 31 U.S.C. § 1346(b) 

partially superseded 31 U.S.C. § 1346(a) with respect to certain 

19Omnibus Consolidated Appropriations Act, 1997, Pub. L. No. 104-208, § 613, 

110 Stat. 3009, 3009-356 (1996).

20The section number changes from year to year, but is always in the low 600s. For 

consistency, we will refer simply to “section 611.”
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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 611. 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 one-year 

requirement of the Russell Amendment. Thus, the President could 

lawfully create an interagency Radiation Policy Council for a 

duration in excess of one year, but interagency funding would 

require compliance with section 611. B-196841-O.M., December 18, 

1980. More recently, section 611 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 629 of the 1998 Treasury-General Government 

appropriation act:

“Notwithstanding section 611, interagency financing is authorized to carry out the 

purposes of the National Bioethics Advisory Commission.” Pub. L. No. 105-61, § 

629, 111 Stat. at 1315. 

Since the statute authorizes the concept but not the precise method, 

there would presumably be some discretion in this regard—e.g., 

periodic reimbursement, advances to a working fund, etc.

Another approach is illustrated by the Joint Financial Management 

Improvement Program (JFMIP). The JFMIP was created 

administratively in 1947 as a cooperative effort by GAO, the Office 

of Management and Budget, and the Treasury Department. It 

received a statutory basis in the Budget and Accounting Procedures 

Act of 1950 (31 U.S.C. § 3511(d)). The Office of Personnel 

Management joined in 1966. At the present time, GAO initially 

charges the JFMIP’s common expenses (e.g., executive director’s 

salary and secretarial support) to its own appropriation and then, at 

the end of each fiscal year, bills the other three for 25% each of those 

common expenses. This funding method is expressly authorized by 

a proviso appended to GAO’s appropriation language every year. 

See, for 1998, the Legislative Branch Appropriations Act, 1998, 

Pub. L. No. 105-55, 111 Stat. 1177, 1196 (1997). The purpose of the 

proviso was to comply with section 611. B-84260-O.M., 

September 12, 1974.
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Perhaps the best illustration of the import and impact of section 611 

is the saga of the Federal Executive Boards. In 1961, President 

Kennedy created interagency groups called Federal Executive 

Boards to better coordinate federal activities outside of Washington. 

Their number has increased over the years.21 From the outset, the 

Boards were funded from the appropriations of the member 

agencies rather than by seeking direct appropriations. The 

enactment of section 611 gave the agencies something of a jolt 

because they had been supporting the Boards for up to ten years 

under 31 U.S.C. § 1346(b),22 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 if there was any way 

GAO could pick up the tab. GAO reviewed the history of section 611 

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 [611] 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., December 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 section 611 barred 

interagency financing of the Federal Executive Boards, and sought 

GAO’s concurrence. They got 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 agency with 

a primary interest in the success of the interagency venture, from 

picking up the entire costs.” Id. at 692. Thus, if you could conclude 

that one agency had a “primary interest” in a particular Board 

activity, and if that agency were willing to pay the entire cost 

21Standardized Federal Regions—Little Effect on Agency Management of Personnel, 

GAO/FPCD-77-39, at 2 (August 17, 1977).

22This fact may help suggest why Congress wanted to reinsert itself in the process.
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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 611 barred in-kind as 

well as cash support. Mere attendance at meetings or functions, 

however, does not constitute support. Id.

One of the things Federal Executive Boards do is give awards. 

Absent the requisite statutory approval, an agency may not pay a 

pro-rata share of the expenses of a FEB awards banquet. B-219795, 

September 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). It can also, under the Incentive Awards Act, make awards to 

its own employees for services rendered to a Federal Executive 

Board. B-240316, March 15, 1991. Similarly, an agency may pay a 

reasonable registration fee for attendance of its employees at a 

Federal Executive Board 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 Federal Executive Board funding to Congress.23 In any 

event, as noted above, section 611 was amended in 1996 to exempt 

the Federal Executive Boards.

Another general provision which has been around for about ten 

years is section 617 of the 1998 Treasury and General Government 

Appropriations Act, 111 Stat. at 1312:

“Notwithstanding section 1346 of title 31, United States Code, or section 611 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 multiple Federal 

departments, agencies, or entities, as provided by Executive Order No. 12472 

(April 3, 1984).”

23GAO/FPCD-77-39, supra note 21, at 24.
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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 (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., 

September 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. Also, it 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.24 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 Operations, Subcommittee Chairman John Monagan 

described the committees in the following terms:

24Brown, supra note 7, 32 Pub. Ad. Rev. at 335; Richard O. Levine, Comment, The

Federal Advisory Committee Act, 10 Harv. J. on Legis. 217, 217-218 (1973).
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“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.”25

In 1972, Congress enacted the first attempt to comprehensively 

regulate advisory committees—the Federal Advisory Committee Act 

(FACA), Pub. L. No. 92-463, 86 Stat. 770, 5 U.S.C. App. 2 §§ 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.”26 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’re needed and quit when you’re done. The 

General Services Administration is given the job of prescribing 

“administrative guidelines and management controls applicable to 

advisory committees.” Id., § 7(c). GSA’s regulations are found in 

41 C.F.R. Subpt. 101-6.10.27

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, 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. 2 § 9(c)); its 

meetings must be open to the public (5 U.S.C. App. 2 § 10(a)(1)); 

notice of each meeting must be published in the Federal Register 

25H.R. Rep. No. 91-1731, supra note 1, at 2 (quoting a statement made in committee 

hearings).

26Michael H. Cardozo, The Federal Advisory Committee Act in Operation, 

33 Admin. L. Rev. 1, 10 (1981). The quoted passage is distilled from FACA § 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 (April 7, 1977).

27The Supreme Court has said that the GSA regulations merit “diminished 

deference” because they were not issued contemporaneous with the statute, and 

section 7(c) talks about guidelines and controls, not regulations. Public Citizen v.

Department of Justice, 491 U.S. 440, 463-465 n.12 (1989). The D.C. Circuit accords 

them no deference because FACA is “applicable to all agencies.” Association of

American Physicians and Surgeons, Inc. v. Clinton, 997 F.2d 898, 913 (D.C. Cir. 

1993). 
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(5 U.S.C. App. 2 § 10(a)(2)); it must keep detailed minutes of each 

meeting (5 U.S.C. App. 2 § 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. 2 §§ 10(e), (f)); and it must make 

transcripts of meetings available to the public at actual duplication 

cost (5 U.S.C. App. 2 § 11(a)). Advisory committees must “be fairly 

balanced in terms of the points of view represented and the 

functions to be performed.” 5 U.S.C. App. 2 §§ 5(b)(2),

5(c); 41 C.F.R. § 101-6.1002(c); 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).

As GAO has pointed out, FACA does not prescribe remedies or 

penalties for violations, nor does it expressly provide a private cause 

of action. 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. See B-278940, 

January 13, 1998. 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 declaratory 

judgment. E.g., National Nutritional Foods Association v. Califano, 

603 F.2d 327, 336 (2d Cir. 1979). The Second Circuit further noted 

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

FACA § 3(2), as amended by the Federal Advisory Committee Act 

Amendments of 1997,28 defines “advisory committee” as follows:

28Pub. L. No. 105-153, § 2(a), 111 Stat. 2689 (1997).
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“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 parttime, 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.”

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), 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. The 

issue in Association of American Physicians and Surgeons 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 it believed the question far from easy, Id. 

at 906, the court 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.
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The exemption for committees created by the National Academy of 

Sciences or the National Academy of Public Administration was 

added in the 1997 amendment.29 While exempt from the section 3(2) 

definition, they are nevertheless subject to a set of procedures 

included in the 1997 legislation. FACA § 15. FACA § 4 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 may, of course, 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, 66, 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.”

Other exemptions derive from case law. 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). It has also found that the Smithsonian Institution is not an 

“agency” under FACA’s definition. Consequently, FACA would not 

apply to advisory bodies established by the Smithsonian. 12 Op. Off. 

Legal Counsel 122 (1988).

29The original version of section 3(2), on the books until the 1997 amendment, 

exempted the Commission on Government Procurement and the Advisory 

Committee on Intergovernmental Relations. The Procurement Commission finished 

its job and went home 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 (1995) (termination); Pub. L. No. 104-328, 110 Stat. 4004 

(1996) (extension).
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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.30

(2) Advisory versus operational

FACA applies to committees which are purely advisory. It does not 

apply to bodies that are “operational.” See FACA § 9(b) (“[u]nless 

otherwise specifically provided by statute or Presidential directive, 

advisory committees shall be utilized solely for advisory functions”); 

FACA § 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 (D.C. Cir. 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 v. Gaus, 61 F.3d 929 

(D.C. Cir. 1995) (“Low Back Panel,” although established by 

government, was charged with developing guidelines for health care 

practitioners rather than providing advice to 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, May 30, 1986 (internal memorandum) (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 not change the result. Public Citizen, 

622 F. Supp. at 758. These cases, by the way (except for Sofamor

30Good 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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Danek), 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 (1984); the Civil War Centennial Commission, Pub. L. 

No. 85-305, 71 Stat. 626 (1957); and the National Capital 

Sesquicentennial Commission, Pub. L. No. 80-203, 61 Stat. 396 

(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 

committee’s charter—which is not required for an exempt entity—

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.” FACA, § 9(c)(F). 

Also, the fragment of FACA § 9(b) quoted above explicitly 

recognizes the inclusion of nonadvisory functions if specifically 

provided by statute or Presidential directive. The GSA regulations 

implement this by exempting committees which are “established to 

perform primarily operational as opposed to advisory functions.” 

41 C.F.R. § 101-6.1004(g). An illustrative case is Natural Resources

Defense Council v. EPA, 806 F. Supp. 275 (D.D.C. 1992) (EPA’s 

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 that a “primarily operational” committee can become subject 

to FACA “if it becomes primarily advisory in nature.” 41 C.F.R. 

§ 101-6.1004(g).

(3) Who is being advised?

The definition in FACA § 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.” FACA § 3(3) expressly 

incorporates the Administrative Procedure Act definition of 

“agency,” 5 U.S.C. § 551(1), which specifically excludes Congress. 

See also FACA § 2(a). Thus, assuming the absence of any other 

disqualifying factors, an advisory committee will be subject to FACA 
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if it advises the President and/or an executive agency. A body which 

advises Congress is exempt. E.g., B-135945, March 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., February 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 simplistic view that merely including Congress on the 

list of recipients is enough to invoke the exemption. B-178395, 

April 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, October 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).
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(4) “Established or utilized”

A key portion of FACA’s section 3(2) definition is that the group be 

“established 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). 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. 1990).

Also, since FACA § 3(3) defines “agency” by incorporating the 

Administrative Procedure Act definition, 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). 
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Others, viewing the term “utilized” as ambiguous, were guided more 

by legislative history. E.g. Lombardo v. Handler, 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 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.” 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 quasipublic organizations . . . ‘for’ public agencies as well as ‘by’ such agencies 

themselves.” Id. at 462. 

Under this approach, the ABA committee—privately formed, “in 

receipt of no federal funds and not amenable to . . . strict 

management by agency officials” (id. at 457)—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. U.S. EPA, 917 F. Supp. 34, 40 n.6 (D.D.C. 1996). 

“Established” refers to a government-formed body while “utilized” 
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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 v.

Young, 900 F.2d at 332-333. As the D.C. Circuit phrased it in another 

case, in light of the Public Citizen definition of “utilize”—

“FACA can only apply if the committee is established, managed, or controlled for 

the purpose of obtaining advice or recommendations for the federal government.” 

Sofamor Danek Group v. Gaus, 61 F.3d 929, 936 (D.C. Cir. 1995).

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 following cases all found 

FACA inapplicable because the bodies in question 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 at 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 v. Young, 900 F.2d at 333.

• Although the Environmental Protection Agency determined the 

schedule and made other logistical arrangements for meetings with 

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 it was not, and as a 

judicial branch entity could not be, managed or controlled by 

Justice. Minority membership on the committee (in this case, two 

Justice officials out of 16 members) is not control. Washington Legal

Foundation, 17 F.3d at 1450-51.

(5) Other factors

Reminiscent of an interpretation that originated under the Title 31 

statutes decades before FACA’s enactment, FACA applies to a group 
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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 and Surgeons

v. Clinton, 997 F.2d 898, 915 (D.C. Cir. 1993) (FACA does not apply to 

“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 

Physicians and Surgeons). The GSA regulations reflect this point. 

41 C.F.R. § 101-6.1004(i), discussed in B-202455, August 30, 1984, and 

B-202455, March 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.” Physicians and Surgeons, 

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. 

§ 101-6.1003 (GSA’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 applied FACA to informal meetings. E.g., 

National Nutritional Foods Association v. Califano, 603 F.2d 327 

(2d Cir. 1979); Food Chemical News, Inc. v. Davis, 378 F. Supp. 1048 

(D.D.C. 1974). The more recent trend seems to be 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.” Physicians and Surgeons, 997 F.2d at 914, 
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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. U.S. EPA, 

917 F. Supp. 34, 42 (D.D.C. 1996); Grigsby Brandford & Co. v. United

States, 869 F. Supp. 984, 1001 (D.D.C. 1994).

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. U.S.

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. The 

presence of federal funding would not, in view of all the other ways 

to fall outside the statute, 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 § 3(2) definition expressly includes boards, committees, etc., 

“or any subcommittee or other subgroup thereof.” 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 Anti-Hunger Coalition v. Executive

Committee, 557 F. Supp. 524, 529 (D.D.C. 1983), aff’d, 711 F.2d 1071 

(D.C. Cir. 1983). Under this approach, the subgroup operates 

essentially as staff of the parent committee. In an internal 

memorandum, B-199008-O.M., June 14, 1983, at 9, 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 intended 
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subcommittees or subgroups to be included only in those unusual circumstances 

where they side-step their parent committees.”

The D.C. Circuit revisited the issue in a 1993 case, Association of

American Physicians and Surgeons v. Clinton, 997 F.2d 898, the issue 

being 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.” 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 Physicians and Surgeons) 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.” Id. 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 FACA § 9:

“(a) No advisory committee shall be established unless such establishment is—

“(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.”

As this provision indicates, and as the GSA regulations reflect 

(41 C.F.R. § 101-6.1005), there are several ways to create an advisory 

committee:
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• 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 can, of course, legislatively create committees or other 

groups, advisory and/or operational. Therefore, the discussion 

under this heading is not limited to advisory bodies. And to the 

extent applicable, a statute creating a board, commission, 

committee, or similar group will generally include the following 

elements:

(A) It will prescribe the group’s functions and duties. Unless 

otherwise provided, this description will determine whether the 

group is “primarily operational” and thus exempt from 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 (National Gambling Impact Study 

Commission).

(B) It may address the group’s status vis-a-vis FACA. The statute 

may expressly provide that the group is subject to FACA. E.g., 

50 U.S.C. App. § 2169(i)(1) (advisory committees established by the 

National Commission on Supplies and Shortages). It may render the 

group wholly exempt from FACA. E.g., Pub. L. No. 98-399, § 5(c), 

98 Stat. 1473, 1474 (1984) (Martin Luther King, Jr. Federal Holiday 

Commission). Or, it may exempt it from certain portions of FACA, 

implying that FACA is otherwise applicable. E.g., Pub. L. No. 93-348, 

§ 211(a), 88 Stat. 342, 351-52 (FACA § 14—termination and 

renewal—not applicable to National Advisory Council for the 

Protection of Subjects of Biomedical and Behavioral Research).

(C) It will 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 (Advisory Commission on Intergovernmental 
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Relations, members appointed by President, President of the Senate, 

Speaker of the House); Pub. L. No. 93-348, 88 Stat. 342, supra

(members appointed by 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. E.g., 50 Comp. 

Gen. 736 (1971) (holding that membership on an advisory council 

was a position as an officer or employee for purposes of such a 

provision).31 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, 

205-206 (1984).

Mixing of the branches on a body with operational functions can be 

problematic. See 8 Op. Off. Legal Counsel 200 (1984). However, so 

far at least, no one has objected to persons from different branches 

serving together on a body which is purely advisory. E.g., 7 Op. Off. 

Legal Counsel 202 (1983). The executive branch does object to 

provisions which purport to place any restrictions (e.g., political or 

racial balance) on the President’s appointment power. E.g., 14 Op. 

Off. Legal Counsel 157, 158 (1990).

(D) It will 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), 98 Stat. 1473, 1474 (1984) (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., 

Pub. L. No. 91-129, § 5(a), 83 Stat. 269, 271 (1969) (Commission on 

Government Procurement).

31For 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, 322-323 (1979). 
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Payment of a per diem in lieu of subsistence is available only where 

authorized by statute. 20 Comp. Gen. 361 (1941); 10 Comp. Gen. 239 

(1930). For committees subject to it, FACA § 7(d)(1)(B) provides the 

necessary authority. For other groups, the authority must be found 

elsewhere. E.g., 36 U.S.C. § 1403(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. (Of course, to trigger the 

entitlement at all, the “little” must exceed zero.) 45 Comp. Gen. 131, 

133 (1965); 28 Comp. Gen. 211 (1948). (Both cases deal with per 

diem payments.)

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 (1949).

For advisory committees under FACA, the statute imposes a 

compensation ceiling of the rate specified for GS-18. The regulations 

say GS-15 but allow a higher rate if the agency head can justify it. 

5 U.S.C. App. 2 § 7(d); 41 C.F.R. § 101-6.1033. Both authorize the 

payment of travel expenses for duties performed away from home 

or regular place of business. Id.

A common provision exempts members and/or staff from the socalled 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, addressing 

salary rates. 53 Comp. Gen. 531 (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, cited above, § 211(a), 88 Stat. at 352. If exemption from 

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 
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Schedule pay rates.” E.g., Christopher Columbus Quincentenary 

Jubilee Commission, Pub. L. No. 100-94, § 5, 101 Stat. 700, 701 

(1987).

(E) It may make some provision for support services. The 

committee will 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. In FACA § 5(b)(5), Congress reminds itself 

to include a support services provision. Operational groups are less 

likely to have such a provision since they will, for the most part, 

receive direct operating appropriations and can use them to procure 

the needed services, including use of the Economy Act. See

B-157312, August 2, 1965. However, a body whose majority is 

nongovernment (government members were a majority in B-157312) 

does not have access to the Economy Act. 33 Comp. Gen. 115, 

116-117 (1953).

Support service provisions 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. § 1404(e). 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 (1995). Still another 

variation leaves it to the parties to fight it out. E.g., Pub. L. 

No. 93-556, § 7(b), 88 Stat. 1789, 1792 (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).

(F) It will prescribe applicable reporting requirements. (See “Who is 

being advised” heading above.)

(G) It will most likely 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 (1964) (Public Land Law Review 

Commission to terminate on earlier of fixed date or six months after 

submission of report). Some entities may simply terminate on a 
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fixed date, an approach suitable for memorial commissions, for 

example. E.g. Pub. L. No. 98-101, § 7, 97 Stat. 719, 722 (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 years after its date of establishment unless its 

duration is “otherwise provided for by law.” FACA § 14(a)(2)(B). 

The Justice Department has held 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 173-174.

(2) Statutory committees: funding

A final element the enabling statute will address is funding. For the 

most part, a board or committee created by Congress is 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., April 28, 1983 (referring to 

the Cost Accounting Standards Board). In FACA §§ 5(b)(4) and (5), 

Congress tells itself to make sure that legislation 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).
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The authorization of appropriations may be indefinite, i.e., “such 

sums as may be necessary.”32 Others may include a monetary 

ceiling.33 Still others may cover multiple-year periods either year-byyear or in the aggregate.34 A variation provides a specific dollar 

authorization for the first year and “such sums as may be necessary” 

thereafter.35 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. § 1408 (Holocaust Memorial 

Council); Pub. L. No. 104-169, § 9(b), 110 Stat. 1482, 1488 (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. There is no required form 

for the 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, if not limit, this 

choice. Some, 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”).

32Examples are the Commission on Government Procurement, Pub. L. No. 91-129, 

§ 9, 83 Stat. 269, 272 (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 (1953).

33E.g., Civil War Centennial Commission, Pub. L. No. 85-305, § 9, 71 Stat. 626, 628 

(1957).

34E.g., Christopher Columbus Quincentenary Jubilee Commission, Pub. L. 

No. 98-375, § 11(a), 98 Stat. 1257, 1262 (1984) (year-by-year); Commission on 

Merchant Marine and Defense, Pub. L. No. 98-525, § 1536(i), 98 Stat. 2492, 2635 

(1984) (aggregate).

35Commission on the Bicentennial of the Constitution, Pub. L. No. 98-101, § 8, 

97 Stat. 719, 723 (1983).
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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.

Appropriations can be used only for their 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. E.g., B-211149, June 22, 1983 (because 

Holocaust Memorial Council had specific 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., the 1985 

appropriation for the Japan-United States Friendship Commission, 

Pub. L. No. 98-411, 98 Stat. 1545, 1568 (1984). 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 feed and/or 

otherwise entertain itself from the taxpayers’ pocket virtually at 

will. B-138969, April 16, 1959 (Lincoln Sesquicentennial 

Commission); B-138925, April 15, 1959 (Civil War Centennial 

Commission); B-129102, October 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, but 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 must, in accordance 

with the miscellaneous receipts statute, 31 U.S.C. § 3302(b), be 
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deposited in the general fund of the Treasury, subject to exceptions 

discussed in detail in Chapter 6. For the most part, a body which is 

purely advisory should not be in a position to generate receipts, with 

the possible exception of recovering overpayments of compensation 

or travel allowances. 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 inhibition 

on entertainment expenditures. Such language is equally sufficient 

to overcome the miscellaneous receipts statute. B-136051, 

August 27, 1959 (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 socalled User Fee Statute, 31 U.S.C. § 9701, in which case the fees are 

fully subject to the miscellaneous receipts requirement. Since user 

fees and donations are two different things, the authority to treat 

donated funds as exempt from fiscal laws does not apply to user 

fees. B-275959, May 5, 1998 (Holocaust Memorial Council).

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 
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would be necessary to account for each state’s funds separately so 

that any remaining unexpended balances could be refunded. 

A-51645, November 6, 1936.

Where an appropriation includes a limit on obligations for a 

particular item, a supplemental appropriation cannot be used to 

exceed that limitation unless expressly provided. This rule does not 

apply—

“where the Congress does not explicitly provide for an increase in limitations 

theretofore prescribed, but the legislative history of the supplemental act shows 

that the additional funds were provided to administer new or additional functions 

and it is clearly shown that funds over and above the original limitations would be 

required to be expended in order that such functions may be carried out.” B-114462, 

April 22, 1953. 

That case held that the War Claims Commission could use funds 

from a supplemental appropriation for travel expenses incident to 

closing a field office, even though it would cause a ceiling on travel 

expenses in the original appropriation to be exceeded.

In the case of small celebration/memorial commissions, GAO has 

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.” B-8474, February 19, 1940, 

at 2. 

The subject of that discussion was the Benjamin Harrison Memorial 

Commission, established by Pub. L. No. 76-352, 53 Stat. 1274 (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 (1940). In 

such a situation, the commission is not required to account for the 
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funds in the same manner as a regular federal agency. However, it is 

not free money and the commission does have a record-keeping 

responsibility, albeit a minimal one. “[I]t is felt desirable that you 

maintain an adequate record of such funds and of the expenditure 

thereof.” A-84233, June 3, 1937 (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 (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 (1984) (President directed to establish 

Chemical Warfare Review Commission). Congress can fund the 

body by a direct appropriation (e.g., 50 Stat. 10 for the 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) (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. 12,502, January 28, 1985 (Chemical Warfare Review 

Commission).

Congress may, either in conjunction with a direct appropriation or 

without it, 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 (1957) (the Civil War Centennial 

Commission received direct appropriations). 

Section 201 of the ICC Termination Act of 1995, Pub. L. No. 104-88, 

109 Stat. 803, 939 (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 

Council. Another variation is to appropriate money to an existing 

agency, to be transferred to the board or commission when it is 
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legally capable of receiving them. E.g., 2 Op. Off. Legal Counsel 366 

(1977).36

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 (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, unless of course this was the reason 

Congress stopped making appropriations. B-39995-O.M., April 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 might come 

into play (e.g., a non-advisory body created by statute, with no 

appropriations of its own but funded by some existing agency), but 

it would be rare.

36Although not germane to the result or to the point made in the text, the 

“appropriation” cited in the OLC opinion was merely an authorization.
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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 through the traditional authorizationappropriation 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 advised 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 (1985). However, this inhibition does not 

exist in the case of an advisory committee. As we have seen, the 

Federal Advisory Committee Act explicitly recognizes, in sections 

3(2) and 9(b), the inherent authority of the President, and of agency 

heads, to establish purely advisory bodies.37

A President creating an advisory body typically does so by issuing an 

executive order. The executive order will basically include the same 

elements that are found in an enabling statute as outlined above. It 

will 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.

37Cf., e.g., Association of American Physicians and Surgeons v. Clinton, 997 F.2d 898, 

908 (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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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 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. 13,037, § 4(b) (1997): Commission to Study Capital 

Budgeting, funded by Treasury Department.

• Exec. Order No. 13,015, § 3(b) (1996): White House Commission on 

Aviation Safety and Security, funded by Department of 

Transportation.

• Exec. Order No. 12,961, § 3(c) (1995): Presidential Advisory 

Committee on Gulf War Veterans’ Illnesses, funded by Department 

of Defense.

• Exec. Order No. 12,546, § 3(c) (1986): Presidential Commission on 

the Space Shuttle Challenger Accident, funded by the National 

Aeronautics and Space Administration.

• Exec. Order No. 12,367, § 3(b) (1982): President’s Committee on the 

Arts and the Humanities, funded by the National Endowment for the 

Arts.

• Exec. Order No. 12,345, § 4(d) (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. 12,229, § 1-301 (1980): White House Coal Advisory 

Council, funded by Department of Labor.

The pertinent provisions of FACA are sections 5(b)(5), 5(c), 12, and 

14. Section 5(b)(5) tells Congress to make provision for support 

services and funding in any legislation creating an advisory 

committee. Section 5(c) makes this applicable to the President or 
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any other federal official creating an advisory committee.38 

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 two years after its creation, 

except that it can be renewed by the establishing authority for 

successive two-year periods.39 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 the general. See B-202362, March 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 

38National Anti-Hunger Coalition v. Executive Committee of the President’s Private

Sector Survey on Cost Control, 711 F.2d 1071, 1073 and n.1 (D.C. Cir. 1983); Metcalf

v. National Petroleum Council, 553 F.2d at 179 n.35.

39A FACA committee can thus 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. FACA § 7; B-127685-O.M., April 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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all funds appropriated in that act must generally be followed. 

B-222758, June 25, 1986 (Chemical Warfare Review Commission 

violated anti-lobbying provision in Defense Department 

appropriation act).40 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. 11,130 (1963). So was an earlier body, the Missouri Basin Survey 

Commission. Exec. Order No. 10,318 (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. 110 (1983).

Still other committees are intended to perform their functions at 

little or no cost to the government. An example here is President 

Reagan’s Private Sector Survey on Cost Control in the Federal 

Government, the so-called Grace Commission. In setting up the 

Survey’s executive committee, the President directed that it was “to 

be funded, staffed and equipped, to the extent practicable and 

40We say “generally” because B-222758 is the easy case. More difficult would be the 

case, on which we have found no precedent or discussion, where a restriction 

would effectively make it impossible for the committee to do what it was set up to 

do.
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permitted by law, by the private sector without cost to the Federal 

Government.” Exec. Order No. 12,369, § 3(e) (1982).

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, March 29, 1976.

The Justice Department has held that a funding agency may not 

delegate the authority to obligate funds to an advisory committee, 

the obligation of funds being a non-advisory function. Relationship

Between National Commission on Libraries and Information

Science and Advisory Committee to White House Conference on

Library and Information Services, Op. Off. Legal Counsel (February 

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, February 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 (Secretary of Navy 

authorized to appoint Naval Research Advisory Committee); 

15 U.S.C. § 776 (general authority for Department of Energy 

advisory committees). Alternatively, an agency head can establish 

an advisory committee without 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. FACA 

§ 9(a)(2). Other procedures are found in the GSA regulations. The 

committees are fully subject to the termination/renewal provisions 

of FACA § 14.

If Congress has the greatest latitude in funding options and the 

President has somewhat less, the individual agency has least of all. 
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When an agency creates an advisory committee, it has only one way 

to fund it—from its own pocket. The Energy Policy Task Force, for 

example, was created by the Department of Energy under authority 

of 15 U.S.C. § 776. 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 private funding. See, e.g., Metcalf v. National

Petroleum Council, 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.” (Wonder what they wanted?)

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. A non-FACA body still must contend with them. 

Also, the Russell Amendment, 31 U.S.C. § 1347, does not apply to a 

FACA committee. 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, 266-267 (1979). 

That opinion also supports the conclusion that the Russell 

Amendment does not apply to purely advisory bodies, FACA or nonFACA. 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 agencyspecific 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 
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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

HRD-77-26, January 13, 1977, at 5-6 (GAO letter report). Section 2672 

includes its own one-year restriction similar to the Russell 

Amendment. See B-202362, March 24, 1981.

(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, 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 (1984) (Christopher 

Columbus Quincentenary Jubilee Commission); Pub. L. No. 85-305, 

§ 5(a), 71 Stat. 626, 627 (1957) (Civil War Centennial Commission). 

The statute may go a step further and set a monetary limit on what 

can be accepted in a given year. E.g., Pub. L. No. 98-375, cited above, 

as amended by Pub. L. No. 100-94, § 4, 101 Stat. 700, 701 (1987); 

Pub. L. No. 98-101, § 5(h)(2), 97 Stat. 719, 721 (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 (1966). 

The “Commission” refers to the Advisory Commission on 

Intergovernmental Relations. The provision was not so much a 

deliberate attempt to exclude individuals, but a desire to foster 
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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.

The authority to accept gifts does not include the authority to solicit 

them. This is especially true because 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. Examples are 36 U.S.C. § 2304 (Holocaust 

Memorial Council); 29 U.S.C. § 1513(e) (private industry councils 

under the Job Training Partnership Act); Pub. L. No. 98-101, 97 Stat. 

at 721, § 5(h)(1). 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, 544-546 (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 (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. 12,369, 

§ 3(e) (1982). The requirement may be limited to certain of the 

commission’s functions. E.g., 36 U.S.C. § 2304 (Holocaust Memorial 

Council may use only donated funds to construct museum). An 

interesting variation is the Railroad-Shipper Transportation 

Advisory Council, which is authorized to receive government funds 
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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, 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 traditional fiduciary trust concept. See B-274855, 

January 23, 1997. Funds “held in trust,” as those words are 

commonly used to describe a fiduciary relationship, are held for the 

benefit of another. 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, December 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 (1989). In 

B-211149, GAO recommended that the statute be amended to 

explicitly recognize the apparent intent, and 36 U.S.C. § 1407 was 

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, confirming the earlier conclusion in light of 

the amendment. 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.
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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, December 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.

Since 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, January 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 

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 

Corporations

1. Introduction: The Theory 

and the Controversy

The federal government has utilized the corporate device in various 

forms and contexts, for a long time. This usage has been studied 

probably as intensively as anything else in the federal realm. 

Although theory and practice often diverge, a theory of government 
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corporations—albeit an unofficial one in the sense that it is not 

reflected in legislation—has emerged. In an often-cited passage, the 

Supreme Court said 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 of the government corporation, at 

least the theoretical government corporation—commercial 

activities and freedom, to greater or lesser extent, from the laws that 

govern accountability of non-corporate government agencies to the 

Treasury.

Twenty years later, another often-cited document, 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 Truman, is appropriate for the 

administration of governmental programs that (1) are 

predominantly of a business nature, (2) produce revenue and are 

potentially self-sustaining, (3) involve a large number of businesstype transactions with the public, and (4) require greater flexibility 

than the customary type of appropriations budget ordinarily 

permits.41 We see commercial activities and autonomy again, along 

with another important feature: revenue-producing activities of a 

type which would benefit from, or be facilitated by, revolving fundtype financing. While President Truman’s position is often invoked 

as a guide in this area, it has never become law and is not always 

followed.

Although there is no clear and universally accepted standard, it can 

be seen from the preceding paragraphs that the corporate device is 

something the government has 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 

41Budget Message of the President, U.S. Congress, H.R. Doc. No. 80-19, at M61 

(1948), cited in, e.g., Ronald C. Moe, CRS, Managing the Public’s Business: Federal

Government Corporations, S. Prt. No. 104-18, at 7-8,(1995) (hereafter Moe 1995).
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matter of fact, Dr. Harold Seidman, a leading expert in the field, calls 

the government corporation “one of the most controversial 

institutional innovations of our time.”42 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.”43 Those at this extreme 

are driven by what another writer terms a “cultural bias” that 

anything the private sector does is automatically and inherently 

“better” than anything the public sector does.44 For example, 

Marshall Dimock, one of the government corporation’s most ardent 

early supporters, wrote:

“It is a tribute to the potential business efficiency inherent in the corporate device 

that government reliance upon the public corporation has tended to increase with 

the extension of state trading. Statesmen have realized that bureaucratic influences 

inhering in a system of central control and integrated administration are difficult to 

reform. . . . [N]ational legislators have more and more turned to the autonomous 

device, the public corporation. They have said, in effect, ’Let us use the same kind 

of legal entity, freedom of management, and independence of finance which 

contribute to the success of the best-managed private enterprises.’ It is an 

argument that is hard to answer.”45

Opponents of the government corporation have been no less short 

on rhetoric.46 One early critic went so far as to write that “there is 

no place in our constitutional government for the performance of 

governmental functions by means of corporations.”47

42Harold Seidman, The Theory of the Autonomous Government Corporation: A

Critical Appraisal, 12 Pub. Admin. Rev. 89, 90 (1952) (hereafter Seidman 1952).

43Id.

44Francis J. Leazes, Jr., Accountability and the Business State: The Structure of

Federal Corporation 4 (Praeger Publishers, 1987) (hereafter Leazes).

45John McDiarmid, Government Corporations and Federal Funds, at xiii (Univ. of 

Chicago Press, 1938) (introduction by Marshall E. Dimock). 

46“My God, Senators! Stand up for your rights, and stand up for your country before 

it is too late, and . . . do away with these corporations that are going to make the 

United States of America a United States of Russia!” 79 Cong. Rec. 4051 (1935) 

(Sen. Schall).

47O. R. McGuire, Government by Corporations, 14 Va. L. Rev. 182, 186 (1928).
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Most reasoned analyses tend to avoid the extremes and focus 

instead on how the corporate device works or has been used in 

specific contexts. For example, Dr. Ronald C. Moe, one of the 

government’s leading experts on government corporations, has 

noted that several government corporations “perform no 

commercial functions” and that—

“Several of the new breed of corporations were created specifically to escape 

certain government-wide administrative, budgetary and personnel requirements, 

not because incorporation as a separate legal entity was necessary for their 

mission.”48

Another common criticism is the corporation’s lack of 

accountability. If a corporation is given a revolving fund, freedom 

from the fiscal laws governing other agencies, and perhaps even offbudget status, its accountability to Congress is minimal. In addition, 

as some analysts have pointed out, corporate autonomy can also 

diminish accountability to the President and weaken executive 

branch management.49 While all supporters of the government 

corporation seem to laud freedom from accountability to Congress, 

some favor the escape from presidential control as well.50

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 

48Ronald C. Moe, CRS No. 83-236GOV, Administering Public Functions at the Margin

of Government: The Case of Federal Corporations, 24 (1983) (hereafter Moe 1983). 

See also, Is the Administrative Flexibility Originally Provided to the U.S. Railway

Association Still Needed?, GAO/CED-78-19 (February 22, 1978).

49E.g., A. Michael Froomkin, Reinventing the Government Corporation, 1995 U. Ill. 

L. Rev. 543, 607-613 (1995); Ronald C. Moe, Government Corporations and the

Erosion of Accountability: The Case of the Proposed Energy Security Corporation, 

39 Pub. Admin. Rev. 566, 568 (1979).

50E.g., Marshall E. Dimock, Government Corporations; A Focus of Policy and

Administration (Part II), 43 Am. Pol. Sci. Rev. 1145, 1149 (1949), summarized in

Seidman 1952, supra note 42, at 94-95. 
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be sued, use and reuse revenues, and own assets.”51 While NAPA 

was basically supportive of the concept of the government 

corporation, it weighed in on the side of accountability and 

management control. The report recommended a set of eight “basic 

principles” which some view as fairly restrictive and which have 

been, in effect, honored more in the breach by both the executive 

and the legislative branches of the federal government. They are:

“1. All government enterprises and corporations should be agencies of the United 

States.

“2. All administrative and operational functions of the federal government should 

be performed by agencies of the United States located in the Executive branch.

“3. Although different organizational forms and powers and administrative 

flexibility are required for the effective performance of different government 

functions, all Executive organizations should be accountable to the President, duly 

appointed officials and the Congress.

“4. The officers and employees of government enterprises and corporations (other 

than mixed-ownership corporations intended for eventual private ownership) 

should be employees of the United States.

“5. A government corporation should normally be placed under the head of an 

existing department or agency rather than established as an independent Executive 

agency.

“6. No government corporation should create a subsidiary without approval of 

Congress.

“7. Financial transactions of all government corporations should be included in the 

federal budget.

“8. Corporations expected to be profit-making should be established in the private 

sector, and government corporations should be self-sustaining or potentially selfsustaining.”52

51National Academy of Public Administration, I Report on Government

Corporations 21 (1981) (hereafter NAPA 1981). 

52Id. at iii-iv (Executive Summary), cited in Moe 1995, supra note 41, at 16.
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The NAPA report also emphasized that “[t]he burden of proof for 

justifying exemptions from these principles should rest with the 

advocates of such exemptions.”53

Because of its inherent institutional bias in favor of congressional 

control, GAO has also weighed in on the accountability side of the 

ledger. In commenting over the decades on numerous legislative 

proposals to create new corporations, GAO has recognized that 

corporations in some cases “may be necessary and valuable means 

of conducting the public business.” B-96983, August 15, 1950. 

However, it has also expressed a clear preference for the normal 

budget and appropriations process and the fiscal requirements 

which flow from that process, and has argued that departures from 

the standard should be permitted only upon a clear showing that 

there is some valid programmatic reason for doing so—apart from a 

desire to be exempt from fiscal and regulatory laws. E.g., B-127124, 

April 10, 1973; B-160803, February 10, 1967. GAO has also used the 

“Truman criteria” in assessing the appropriateness of the corporate 

form. E.g., B-94958, May 23, 1950.

Another point made in various GAO comments is that the need for 

flexibility does not necessarily require corporate status. Congress 

can legislatively provide the desired degree of flexibility to any 

agency. “[B]udgeting, accounting, and reporting may be designed to 

suit the individual and particular needs of any activity under any 

method of financing.” B-120047, July 17, 1961, at 3. This is related to 

a point Seidman and Moe have made: Use of the term “corporation” 

is perhaps unfortunate and confusing because it tends to bring in the 

entire range of private-sector concepts, some of which are not 

necessary or simply do not fit when implementing a government 

program.54

Largely because each corporation is the creature of its enabling 

legislation, there is no single legally recognized model for the 

government corporation. As Leazes puts it:

53Id.

54Seidman 1952, supra note 42, at 93; Moe 1983, supra note 48, at 3.
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“Federal corporations should not be treated as if they constitute a single class of 

organizational 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.”55

The fact that “[n]o two Federal Government corporations are 

completely alike”56 underscores the importance of the enabling 

legislation. A government corporation (and this is true of any agency 

as well) “possesses only those powers which are enumerated in the 

act of Congress creating it.”57 This of course includes any other 

legislation specifically made applicable. The governing legislation 

determines the body’s powers and functions, its financial 

arrangements, and its degree of operating flexibility. As Dr. Moe 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.”58

Or, as the court in United States v. Nowak, 448 F.2d 134, 138 (7th Cir. 

1971), put it:

“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.”

Notwithstanding this susceptibility to variation, it is possible to 

identify the major characteristics of government corporations. 

(Apart from the requirement for a legislative charter, none of these 

rises to the level of a rule of law.) A government corporation is 

generally (1) a federally chartered entity (2) created to serve a 

public function (3) of a predominantly business nature. Government

Corporations: Profiles of Existing Government Corporations, 

GAO/GGD-96-14, at 1 (December 1995). Most, but not all, have been 

55Leazes, supra note 44, at 7.

56Moe 1995, supra note 41, at 47.

57Seidman 1952, supra note 42, at 93.

58Moe 1983, supra note 48, at 33.
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created to carry out business-type programs that are thought to need 

a high degree of autonomy and flexibility. Congress Should Consider

Revising Basic Corporate Control Laws, GAO/PAD-83-3, at 1 (April 6, 

1983). Consequently, they are not subject to all of the federal 

statutes or regulations generally applicable to government agencies. 

Government corporations may be independent or subject to 

significant federal control as part of a government department or 

agency.59 They may or may not have a board of directors, although 

most do, and may have board members who are named government 

officials, such as the head of an agency, or board members who are 

appointed by the President. Many government corporations are 

either fully or partially funded by the federal government, but may 

also have authority to raise and collect revenue from other sources 

consistent with their business-type operations. Congress has 

authorized other government corporations to issue obligations 

backed by the full faith and credit of the United States. The theory is 

that the operational and financial flexibility given to a government 

corporation allows it to respond more quickly to changes in the 

marketplace and to take advantage of cost-saving opportunities. Id. 

at 1.

It is also possible to identify several powers common to most 

government corporations:

“With some minor variations, government corporations can sue and be sued; 

acquire property in their own name; use their revenues; obtain funds either by 

borrowing from the Treasury or from revolving funds, instead of by securing annual 

appropriations; and determine the character and necessity of their expenditures 

and the manner in which they are incurred, allowed, and paid, subject to laws 

specifically applicable to government corporations rather than to general statutes 

controlling the expenditure of public funds. These are the vital ingredients which 

give a government corporation its distinctive character and without which it cannot 

operate successfully.”60

While the 20th century proliferation of government corporations has 

stemmed largely from the perceived attractiveness of the privatesector corporate model, the analysts caution against taking the 

analogy too far. In this connection, Seidman points out:

59E.g., Moe 1983, supra note 48, at 36-39.

60Seidman 1952, supra note 42, at 93-94.
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“While government and private corporations in the United States do possess certain 

common characteristics, there are and always have been fundamental differences. 

Both have a legal personality, can sue and be sued, and generally have boards of 

directors. Here the resemblance ends. Private corporations, with the obvious 

exceptions, are organized for profit and the corporate form is utilized primarily to 

take advantage of limited liability, pooling of investment, transferability of 

securities, and perpetuity. These benefits are of little or no significance for a 

government corporation.”61

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 

exchange for goods and services; they are legally confiscated from citizens, by force 

if necessary. . . . 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.”62

GAO, in part because it used to be responsible for auditing 

government corporations, has conducted periodic surveys of the 

activities and financing of all existing government corporations. The 

earliest edition, called the Reference Manual of Government

Corporations, was prepared in 1944 primarily for internal GAO use. 

It was reissued for more general use in 1945. S. Doc. No. 79-86 

(1945). A 1985 edition was entitled Reference Manual of

Corporations Authorized or Established by the Congress. It wasn’t 

very long before the title was changed again: In 1988, Profiles of

Existing Government Corporations was issued as GAO/AFMD-89-

43FS (December 1988) and as a committee print of the House 

Committee on Government Operations. It was updated and reissued 

in December 1995 with the report designation GAO/GGD-96-14. 

Since corporations come and go over time, and provisions for their 

governance and financing may change, each edition of the 

Manual/Profiles is useful at least for historical purposes and 

contains material not found in the others. See, e.g., Lebron v.

61Id. at 93.

62Ronald C. Moe and Robert S. Gilmour, Rediscovering Principles of Public

Administration: The Neglected Foundation of Public Law, 55 Pub. Admin. Rev. 135, 

143 (1995). Elsewhere, Moe attributes to Wallace Sayre the quip that “the public and 

private sectors are alike in the nonessentials, differing only in the essentials.” Moe 

1995, supra note 41, at xiii.
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National R.R. Pass’r Corp., 513 U.S. 374, 387, 395 (1995) (citing the 

1945 edition).

2. The Problem of Definition

a. Government Corporations In our preceding discussion of miscellaneous boards and 

committees, we noted at the outset the lack of a commonly accepted 

working definition. That lack is equally prominent in the case of 

government corporations. Dr. Moe has noted:

“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.”63

GAO has also pointed out the lack of a uniform definition. Congress

Should Consider Revising Basic Corporate Control Laws, 

GAO/PAD-83-3, at 8 (April 6, 1983). Definitions found in the United 

States Code serve only limited purposes. For example, 5 U.S.C. 

§ 103(1) defines the term, but only for purposes of Title 5, as “a 

corporation owned or controlled by the Government of the United 

States.” Title 31 also has what amounts to a definition by virtue of 

including the word “instrumentality” in its definition of agency. 

31 U.S.C. § 101. The chief (and only) government-wide regulatory 

statute, the Government Corporation Control Act, fails to include a 

definition but merely lists the entities covered.

As we have seen, one approach is to try to identify common 

attributes. One account identifies some of these attributes as “a 

public purpose, a federal government charter, some form of 

government supervision, and a public subsidy.”64 While this is useful 

in establishing a conceptual direction, it suffers when you break it 

down to the working level. If, for example, one equates “charter” 

63Moe 1995, supra note 41, at xii. For virtually identical comments, see John T. 

Tierney, Government Corporations and Managing the Public’s Business, 99 Pol. Sci. 

Q. 73, 76 n.6 (1984), and Moe 1983, supra note 48, at 5.

64Leazes, supra note 44, at 18. 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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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/GGD-96-14, at 1 (December 1995). This again shows the hazard 

of generalization, saved by the fortunate inclusion of the word 

“generally,” since some government corporations perform only 

governmental functions.

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 state-created 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 which the legislature may call it.” Gross v. Kentucky Bd. of Mgrs., 49 S.W. 458, 

459 (Ky. Ct. App. 1899).

Acknowledging that any classification is imperfect and open to 

debate, we, for purposes of this discussion, are concerned primarily 

with the following categories:

1. 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.

2. Corporations created and fully or substantially funded by the 

United States Government, but not subject to the Control Act. 

Examples include the Legal Services Corporation and the 

Corporation for Public Broadcasting.65

65The Corporation for Public Broadcasting has strenuously objected to being 

included under any “government corporation” umbrella. See NAPA 1981, supra note 

51, at Appendix 3. We include it under our umbrella listing because (1) it was 

statutorily created as a corporation and (2) it spends federal money. 
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3. 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 United States Postal Service, 

the Smithsonian Institution, and the Bonneville Power 

Administration.66 (The main difference between this group and 

group 2 is that the legislation creating a group 3 entity does not 

confer corporate status on it. Of course, other differences flow from 

that distinction.)

The above groups, taken together, comprise our “definition” for 

purposes of this discussion. 

b. Government-Sponsored 

Enterprises

Although not a major focus of this section, we will, in addition to the 

categories noted above, occasionally refer to the “governmentsponsored enterprise.” 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.”67 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”68—Fannie Mae, Farmer Mac, etc. As 

always, there are exceptions. For example, the Government 

National Mortgage Association—“Ginnie Mae”—is a wholly owned 

government corporation. 31 U.S.C. § 9101(3)(G). Also, the status of 

some entities is debatable. Some contended, for example, that the 

original College Construction Loan Insurance Corporation—

66The Bonneville Power Administration 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. It is subject to the budget, but not the audit, provisions of the 

Corporation Control Act. See 16 U.S.C. §§ 832a, 838i. Our discussion does not 

further address the Postal Service or 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). 

67A Glossary of Terms Used in the Federal Budget Process: Exposure Draft, 

GAO/AFMD-2.1.1, at 49 (Rev. January 1993) (hereafter cited as Budget Glossary

Exposure Draft).

68Lori Nitschke, Private Enterprise With Official Advantages, 56 Cong. Q. Wkly. 1578 

(1998).
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“Connie Lee”—was not a GSE because it was partly governmentowned; others included it.69

Another not too different definition is:

“A GSE is a privately owned, federally chartered, financial institution with 

nationwide scope and specialized lending powers that benefit from an implicit 

federal guarantee to enhance its ability to borrow money.”70

Legislation creating GSEs has not used the same terminology. 

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. Fannie Mae is a “Governmentsponsored private corporation.” 12 U.S.C. § 1716b. Freddie Mac is 

simply a “body corporate.” 12 U.S.C. § 1452(a). Some have 

suggested that the legal status of GSEs has been kept intentionally 

ambiguous.71

For purposes of comparing GSEs with other forms of governmentcreated corporations, 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); 

69Compare Ronald C. Moe and Thomas H. Stanton, Government-Sponsored

Enterprises as Federal Instrumentalities: Reconciling Private Management with

Public Accountability, 49 Pub. Admin. Rev. 321, 328 n.8 (1989) (Connie Lee not a 

GSE), with Carrie Stradley Lavargna, Government-Sponsored Enterprises Are ’Too

Big to Fail’: Balancing Public and Private Interests, 44 Hastings L.J. 991, 999 n.40 

(1993) (Connie Lee included as GSE). Congress took action in 1996 to terminate the 

federal ownership and completely “privatize” Ms. Lee. See 20 U.S.C. § 1155.

70Thomas H. Stanton, Federal Supervision of Safety and Soundness of GovernmentSponsored Enterprises, 5 Admin. L.J. 395, 401 (1991); Moe and Stanton, supra note 

69, at 321. 

71Moe and Stanton, supra note 69, at 321, concurring with Harold Seidman, The

Quasi World of the Federal Government, 6 Brookings Rev. 23 (1988) (hereafter 

Seidman 1988).
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(2) they are financial institutions;72 and (3) they are supervised but 

not directly managed by the government.73 Summary information on 

a number of GSEs may be found in GAO’s Budget Issues: Profiles of

Government-Sponsored Enterprises, GAO/AFMD-91-17 (February 

1991). GSEs are subject to audit by GAO only if specifically provided 

by statute. B-114828, November 25, 1975, at 2.

GAO has issued detailed reports on the government’s exposure to 

risks stemming from its use of GSEs. See Government-Sponsored

Enterprises: The Government’s Exposure to Risks, GAO/GGD-90-97 

(August 1990); Government-Sponsored Enterprises: A Framework

for Limiting the Government’s Exposure to Risks, GAO/GGD-91-90 

(May 1991). In 1992, Congress enacted the Federal Housing 

Enterprises Financial Safety and Soundness Act, 12 U.S.C. ch. 46, 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 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).

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. 

Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972) (national 

bank may not operate a full-scale travel agency); Association of Data

Processing Service Organizations v. Federal Home Loan Bank

Board, 568 F.2d 478 (6th Cir. 1977) (federal home loan banks not 

72A broader definition could include entities like the Corporation for Public 

Broadcasting. E.g., Lloyd D. Musolf and Harold Seidman, The Blurred Boundaries of

Public Administration, 40 Pub. Admin. Rev. 124, 125 (1980). Most subsequent 

definitions, however, including one by the Office of Management and Budget, 

incorporate the financial institution element. See Government Corporations, OMB 

Memorandum No. M-96-05, App. I (December 8, 1995) (definition very similar to 

Moe/Stanton definition quoted in the text). 

73Moe and Stanton, supra note 69, at 323-324, define “instrumentality” as “a privately 

owned institution that is supervised but not directly managed by the government,” 

although they acknowledge the lack of a statutory definition.
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authorized to sell on-line data processing services to member 

institutions);74 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 decision stressed that a statute’s purpose clause is 

not an independent grant of authority. 71 Comp. Gen. at 52.

c. Federally Chartered 

Corporations

This group consists of the 80-plus corporate entities whose charters 

comprise Title 36 of the United States Code, Subtitles II and III.75 

Among the best-known examples are the American Red Cross,76

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 the Code used the term “private 

corporations established under Federal law.”77 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 federal charter is 

viewed as a mark of prestige. The primary purpose of granting it is 

“to bestow public honor and recognition on the works of the 

organization.” Girl Scouts v. Personality Posters Mfg., 304 F. Supp. 

1228, 1232 (S.D.N.Y. 1969).

Although there is variation, the statutory charters “follow a common 

pattern.”78 The typical charter starts by identifying the 

incorporators by name and declaring their corporate status. The 

74The federal home loan banks are usually included as GSEs. E.g., GAO/AFMD-91-17 

at 14. They are also identified as mixed-ownership government corporations. 

31 U.S.C. § 9101(2)(C).

75Apart from this overview treatment and a brief mention later in connection with 

state and local taxes, our discussion does not further address these entities.

76While 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)

7736 U.S.C. § 1101 (1994 ed.). Title 36 was recodified in August 1998 by Pub. L. No. 

105-225, 112 Stat. 1253. The former section 1101 was omitted as unnecessary. In 

addition, the American Red Cross was given its own subtitle, subtitle III, as a “treaty 

obligation organization.” 

78Wesley A. Sturges, The Legal Status of the Red Cross, 56 Mich. L. Rev. 1, 23 (1957).
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incorporators range from a few to several dozen. (The recodification 

dropped the individual names as executed and unnecessary.) The 

statute may be creating a new organization, or it may merely be 

giving a federal charter to an organization already chartered under 

state law. The statute will then state the corporation’s purposes and 

outline its general powers. A typical “powers” provision will include 

such things as 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).79

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 were honorably discharged. 

The charter provided that the corporation would terminate when the 

last of its members died. Act of June 3, 1924, ch. 242, § 6, 43 Stat. 

358, 360. This of course happened some time ago, and the charter is 

no longer carried in the U.S. 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 corporations80 that, even in its 

absence, the corporation is not intended to operate on a for-profit 

79Our 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 U.S. Code go 

rather higher than seems normal for the Code—up to section 300,111, at the writing 

of this chapter, to be precise.

80E.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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basis. Several charters provide for termination if the corporation 

loses its tax-exempt status under the Internal Revenue Code. E.g., 

36 U.S.C. § 70108(b) (Fleet Reserve Association).81

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) (Olympic symbol of five 

interlocking rings).

For the most part, Title 36 corporations do not receive federal funds. 

A few do or, at least, are explicitly authorized to seek federal grants, 

reimbursements, or other kinds of “support.” The United States 

Olympic Committee, for example, can apply for grants from the 

Department of Commerce. 36 U.S.C. § 384 (1994 ed.).82 The National 

Film Preservation Foundation is authorized to receive up to 

$250,000 a year 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 any branch of the federal government, to be paid for 

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, appropriated funds 

are only a portion, substantial though it may be, of the corporation’s 

81The source provision, 36 U.S.C. § 5613 (1994), explicitly stated that the charter 

“shall terminate” if the association fails to maintain its tax-exempt status, language 

omitted from the recodification in favor of general language prescribing expiration 

for noncompliance with any charter provision. 36 U.S.C. § 70102(b). 

82The recodification dropped this provision as “obsolete” because Congress 

authorized the grants in 1980 and none were ever made. See H.R. Rep. No. 105-326, 

at 305 (Table 2A) (1997). Since the funds appropriated for this remain available until 

expended and the authorization contains no expiration, we see no reason the 

authority could not be used in the future. See Pub. L. No. 95-482, 92 Stat. 1603, 1606 

(1978) (authorization); Pub. L. No. 96-304, 94 Stat. 857, 898 (1980) (appropriations.)
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revenue. In no case is a Title 36 corporation funded entirely by direct 

federal appropriations.83 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); 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 (but not profitmaking) 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). Those without such specific 

authority could probably engage in limited income-producing 

activities under their general corporate powers.

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. Subsection (b) requires submission of audit reports to 

Congress, supplemented “in reasonable detail” by a statement of 

income and expenses including the results of any commercial-type 

activities. GAO does not audit these corporations. It does, upon 

request, conduct a limited “report audit,” including a review of the 

corporation’s financial statements, to determine whether the audit 

report complies with the financial reporting requirements of the 

83Title 36 includes two entities substantially supported by appropriated funds—the 

American Battle Monuments Commission (36 U.S.C. ch. 21) and the United States 

Holocaust Memorial Council (id. ch. 23). While placed in Title 36, these are not 

corporations and are thus not included in the concept of “Title 36 corporations” 

discussed in the text. Recognizing the essential differences, the recodification 

separated these from the rest and placed them in Subtitle I, Part B. 
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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 

“nothing came to our attention that would cause us to believe that 

the financial reporting requirements of the law have not been met.” 

E.g., GAO/AIMD-98-177R, June 12, 1998 (Little League Baseball, 

Inc.).

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. §154708(d) (Non-Commissioned Officers 

Association of America). Others include a more explicit federal 

disclaimer provision:

“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 

(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. 1976). In many 

cases this will provide the answer as 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).
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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 v. United States, 385 U.S. at 358-359. 

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). Its employees share federal 

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). However, the Red Cross is not an 

“agency” of the government for purposes of the Freedom of 

Information Act. 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 (later held unconstitutional) 

Religious Freedom Restoration Act. Hall v. American National Red

Cross, 86 F.3d 919 (9th Cir. 1996). Nor is it covered by the Federal 

Tort Claims Act (see below).

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 (3d 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). 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). 
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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); Doe v. American National Red Cross, 847 F. Supp.

at 648-649; 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 40 U.S.C. § 831), and 

that its charter expressly prohibits 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 giving the Society tax-exempt status. 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 

anti-discrimination protections of the Fifth Amendment. 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. It thus 

appears likely that few, if any, of the other Title 36 corporations 

would achieve the same level of “instrumentality” as the Red 

Cross.84

A charitable and benevolent corporation which operates without 

assistance or interference from the government is not a government 

84One possibility is the Corporation for the Promotion of Rifle Practice and 

Firearms Safety, 36 U.S.C. ch. 407, because it was created to take over a program 

formerly administered by the Department of the Army, but there are no cases. 

Another is the U.S. Capitol Historical Society (see United States v. District of

Columbia, cited in the text, discussing the Society’s “governmental functions”).
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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 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). 

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 (1976).

Still another area of controversy is the application of 28 U.S.C. 

§ 1349, which prohibits courts from taking “federal question” 

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 one-half of its capital stock.” The 

typical Title 36 corporation being a non-stock 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 
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purposes of 28 U.S.C. § 1349, one reason being that the president 

appoints only eight 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) USOC 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.

Other courts have applied the stock ownership requirement literally 

and held that section 1349 can never form the basis of federal 

jurisdiction of a non-stock corporation because the government 

cannot own half of what does not exist. E.g., Burton v. USOC, 

574 F. Supp. at 523; Stop the Olympic Prison v. USOC, 489 F. Supp. 

1112, 1117 (S.D.N.Y. 1980). The Supreme Court has noted the split, 

but has not resolved it. American National Red Cross v. S.G., 

505 U.S. 247, 251 and n.3 (1992).

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 longterm contractual relationship with one or more federal agencies to 

perform research and development and related tasks.85 One 

authority refers to them as “’captive corporations,’ which are legally 

private, but are almost entirely government financed.”86 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.” FAR, 48 C.F.R. § 35.017(a)(3).

The funding agency, which is usually the agency which participated 

in establishing the FFRDC, is called the sponsor. 48 C.F.R. 

85Apart from this overview treatment, our discussion does not further address these 

entities.

86Harold Seidman, Government Corporations in the United States, 22 Optimum 40, 

43 (1991) (hereafter Seidman 1991).
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§ 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 five years, but is renewable in five-year 

increments indefinitely. 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 sponsored by the 

Department of the Air Force are the Rand Corporation, Mitre 

Corporation, and the Massachusetts Institute of Technology’s 

Lincoln Laboratory.

FFRDCs originated in the World War II era87 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,88 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.”89 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 (April 11, 1984), which was in turn 

implemented by the subsequent inclusion of coverage in the FAR.

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, presumably because of the amounts involved, 

Congress has specifically authorized agencies to establish FFRDCs. 

For example, the 1991 appropriation for the Internal Revenue 

Service 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 (1990). Legislation enacted in 1987 

872 Report of the Commission on Government Procurement 17 (1972).

88Id. at 18.

89Id. at 64 (App. E., Recommendation No. 5).
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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 (1987).

While there is no government-wide statutory guidance on the 

creation and use of FFRDCs, there is legislation applicable to the 

military departments. 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 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). Defense 

is to include in its budget submission “the proposed amount of the 

man-years of effort to be funded” for each FFRDC, and is to report 

the “actual man-years of effort expended” and the actual obligations 

for each FFRDC after the end of 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. FAR, 48 C.F.R. 

§ 35.017(a)(2). As one might suspect, the FFRDC concept is not free 

from controversy. Dr. Seidman 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.”90

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

90Seidman 1991, supra note 86, at 43-44. For further discussion of the competition 

aspects, see Competition: Issues on Establishing and Using Federally Funded

Research and Development Centers, GAO/NSIAD-88-22 (March 1988). 
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Members, GAO/NSIAD-95-19 (February 1995). The Office of 

Management and Budget subsequently inserted language in OMB 

Circ. No. A-21, sec. J.8.f(2), 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, November 18, 1991. 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 the federal 

treasury, 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 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 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 
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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 these in limited circumstances if the subcontract is “by or 

for” a government 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, October 16, 1991.

A variation on this 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), 

describing a GOCO used by the Department of Energy. Energy also 

funds a group of GOCO research laboratories. A useful report on 

these is Department of Energy: Uncertain Progress in Implementing

National Laboratory Reforms, GAO/RCED-98-197 (September 1998).

e. Summing Up “Developments in the last 20 years might make one suspect that the U.S. 

government is going quasi.”91

The categories we have described make up by far the major portion 

of the “government corporation universe.” 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. They are statutorily designated as instrumentalities of the 

91Seidman 1988, supra note 71, at 23. 
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United States. As such, they have been held immune from awards of 

punitive damages. Smith v. Russellville Prod. Credit Ass’n, 777 F.2d 

1544 (11th Cir. 1985); Rohweder v. Aberdeen Prod. Credit Ass’n, 

765 F.2d 109 (8th Cir. 1985); In re 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 Cen. Iowa Prod. Credit Ass’n v. Scanlan, 380 N.W.2d 699 (Iowa 

1986); Waldschmidt v. Iowa Lakes Prod. 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

Serv., 520 U.S. 821 (1997). One court analogized them to national 

banks in the Federal Reserve System. United States v. Haynes, 

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).92

Another example is the entity addressed in Varicon Int’l v. OPM, 

934 F. Supp. 440 (D.D.C. 1996), a corporation formed by former OPM 

employees, with OPM’s encouragement. OPM awarded it a solesource 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.”93 The literature uses terms like “quasiprivate,” “quasi-government,” and “hybrid organizations.”94 Leazes 

92For 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). 

93Moe and Stanton, supra note 69, at 321; Musolf and Seidman, supra note 72. 

Adding those purely private entities whose doors would close in a matter of weeks 

if the federal money stopped flowing further emphasizes the point. 

94See Musolf and Seidman, supra note 72, at 124.
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calls them “twilight-zone corporations.”95 Moe regards them as 

“relatively unaccountable units at the margin of government.”96

Seidman consigns them to a “terra incognita, somewhere between 

the public and private sectors.”97 The National Academy of Public 

Administration (itself a Title 36 corporation) has reported:

“The boundary between the public and private sectors has been blurred so that one 

cannot say with assurance to which sector many corporations belong or to whom 

they are accountable.”98

Students of public administration disagree over whether this 

blurring is good or bad.99 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 law 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 

Ch. 3.

There is no such thing as a federal incorporation statute. Rather, 

Congress ordinarily charters a government corporation by specific 

legislation that sets out its purposes, powers, structure, obligations 

95Leazes, supra note 44, at 36.

96Moe 1983, supra note 48, at 3.

97Seidman 1988, supra note 71, at 25. 

98NAPA 1981, supra note 51, at 4. 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.

99See, e.g., Seidman 1988, supra note 71, 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).
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and sources of funding. 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 20th 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 fiveeighths of the capital stock in the name of the government, making 

the United States the majority owner.100 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. 

Act of February 25, 1791, ch. 10, 1 Stat. 191.101 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 M’Culloch 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 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 

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:

100McDiarmid, supra note 45, at 21. 

101A capsule history starting with the 1791 act may be found in Lebron v. National

Railroad Passenger Corporation, 513 U.S. 374, 386-391 (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 [are consistent] with the letter and spirit of the constitution, are 

constitutional.” Id. at 419.

The courts have never seriously questioned Congress’ 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.102 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 creating a corporation is never used for its own sake, but 

for the purpose of effecting something else.” M’Culloch, 17 U.S. 

at 411. A more recent analyst has noted that “[g]overnment102Other 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. 1938) (Federal Deposit 

Insurance Corporation); Weir v. United States, 92 F.2d 634 (7th Cir. 1937) (same); 

Langer v. United States, 76 F.2d 817 (8th Cir. 1935) (Reconstruction Finance 

Corporation). 
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sponsored corporations are simply a means of securing 

governmental objectives.”103 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 20th 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,104 the United States Shipping Board Emergency Fleet 

Corporation,105 the United States Spruce Production Corporation,106

and others. After the war, many of the corporations, having fulfilled 

their mission to support the war effort, and being intended as 

temporary to begin with, were liquidated.

It was not long after World War I before another crisis erupted 

leading to the next surge in creating 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 

103Ronald 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).

104The War Finance Corporation was organized under the Act of April 5, 1918, ch. 45, 

40 Stat. 506, to provide financial assistance to industries important to the successful 

prosecution of the war.

105The Emergency Fleet Corporation was organized on April 16, 1917 (McDiarmid, 

supra note 45, at 24-25) to purchase, construct and operate merchant vessels under 

the authority of the original Shipping Board Act, Act of September 7, 1916, ch. 451, 

§ 11, 39 Stat. 728, 731.

106The Act of July 9, 1918, ch. 143, 40 Stat. 845, 888, 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. Due to the signing of the armistice, it was in 

full operation for a total of eleven days. McDiarmid, supra note 45, at 29-30.
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government corporations extensively to stabilize the economy and 

encourage economic growth.107 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.108 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.109 The Commodity Credit Corporation 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.”110 The primary 

method the CCC uses to achieve its purpose is providing loans. The 

Federal Housing Administration 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.111 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 20th 

century government corporations. Over twenty government 

corporations were created to meet the wartime production needs of 

107Leazes, supra note 44, at 21.

108Act of January 22, 1932, ch. 8, 47 Stat. 5, as amended. See also Act of June 25, 

1940, ch. 427, § 6, 54 Stat. 572, 574, and Presidential Proclamation No. 2016, 

December 8, 1932. 

109Banking Act of 1933, § 8, 48 Stat. 162, 168, superseded by Federal Deposit 

Insurance Act, 64 Stat. 873 (1950), codified in 12 U.S.C. ch. 16. 

11015 U.S.C. § 714. The Commodity Credit Corporation was originally established by 

Exec. Order No. 6,340, October 16, 1933, and was given a statutory charter in 1948. 

111National Housing Act, Pub. L. No. 73-479, § 1, 48 Stat. 1246 (1934). Provisions now 

appear in 12 U.S.C. ch. 13, subch. II, and 42 U.S.C. 3533.
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World War II. These included the War Damage Corporation112 (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 

Corporation113 (to aid in mobilizing the productive facilities of small 

business in the interest of successful prosecution of the war), and 

the Defense Plant Corporation114 (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 Financial 

112The War Damage Corporation was actually created by the Reconstruction 

Finance Corporation under statutory authority. See 15 U.S.C. § 606b (1946). 

113The Smaller War Plants Corporation was created by Pub. L. No. 77-603, § 4, 

56 Stat. 351, 353 (1942).

114The Defense Plant Corporation was created by the Reconstruction Finance 

Corporation on August 22, 1940, under the same statutory authority as the War 

Damage Corporation (discussed in note 111, supra). See GAO, Reference Manual of

Government Corporations, S. Doc. No. 79-86, at 32 (1945). 
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Institutions Reform, Recovery and Enforcement Act (FIRREA) of 

1989. 12 U.S.C. § 1441a.

At any given time, it seems, several new corporations are being 

proposed or studied. See, e.g., Government Corporations: Profiles

of Recent Proposals, GAO/GGD-95-57FS (March 1995). The Office of 

Management and Budget disseminated a document in 1995 entitled 

“Specifications for Creating Government Corporations” (OMB 

Memorandum M-96-05, December 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 NAPA report noted earlier.

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.115 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), but the language was changed to recognize the realities of the 

situation.

b. Need for Statutory Authority Prior to 1946, government corporations came into being in one of 

three ways: (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 by purely administrative action, with no statutory 

115Congress 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, tit. III, Ch. 1, Subch. A, 110 Stat. 

1321, 1321-335 (1996). 

This “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 reprinted without corrections. Footnotes indicate 

missing or illegible text in the original.”
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authority. Lebron v. National R.R Pass’r Corp., 513 U.S. 374, 388-389 

(1995). The power of Congress to create government corporations, 

either directly or by delegation, had been settled since M’Culloch v.

Maryland116 in 1819. The issue of executive creation 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 of the time, who 

never much liked government corporations to begin with, said “No.” 

B-23881, March 5, 1942. See also 21 Comp. Gen. 892, 893 (1942). The 

Attorney General of the time, who apparently liked them a lot more, 

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 sovereign immunity 

reasoning. 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, March 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 cannot confer powers, authorities, or 

exemptions it does not have, unless of course it is operating under 

express statutory authority.117

Of course, as the “sue and be sued” point suggests, the heart of the 

question was never the creation of corporate entities per se. It was 

the powers that could be given to them. One decision stated:

11617 U.S. (4 Wheat.) 316 (1819). See the discussion above in 17(B)(3)(a).

117The Attorney General’s opinion did not address this point, but did remind GAO 

that it had at least implicitly condoned the practice by issuing decisions concerning 

nonstatutory corporations—16 Comp. Gen. 613 (1936), for example—without 

questioning the legality of their creation. 40 Op. Att’y Gen. at 201.
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“The Virgin Islands Company 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, January 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. See, e.g., 79 Cong. Rec. 4048 

(1935). 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 

advantages, like tax exemptions and cheap credit, make it] an 

invincible competitor.”118

The idea of a legislative charter became law several years later as 

section 304(a) of the Government Corporation Control Act, Pub. L. 

118Joint Committee on Reduction of Nonessential Federal Expenditures, Reduction

of Nonessential Federal Expenditures—Government Corporations, S. Doc. 

No. 78-227, at 25 (1944).
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No. 79-248, 59 Stat. 597, 602 (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 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.119 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. 

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), 59 Stat. at 602.

There has been little case law, administrative or judicial, addressing 

the requirement of section 9102. 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—corporations formed by the CIA largely to 

provide “cover” for CIA activities. GAO found “irreconcilable 

conflict” between section 9102 and the statutory mandate of the 

CIA. This being the case, the answer was easy—the CIA’s mandate 

119S. Rep. No. 79-694, at 13 (1945). See also S. Doc. No. 78-227, supra note 118, at 27. 

(Strictly speaking, this is not direct legislative history of the Control Act.)
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had to prevail. B-179296, December 10, 1975. A later opinion found 

the statute inapplicable to the creation of subsidiaries by a federallychartered private institution which had been converted from a 

mixed-ownership government corporation. B-219801, October 10, 

1986, at 5-6. Prior to the statutory conversion, section 9102 would 

have applied. Id.

A 1970 GAO case dealt with grants by the old Office of Economic 

Opportunity 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, August 11, 1970. 

The analysis was very similar to that employed in B-145898-O.M., 

June 30, 1961, noted earlier with respect to the MITRE Corporation.

An example of what GAO regarded as a clear violation of the statute 

is found in B-278820, February 10, 1998. The question was whether 

the Federal Communications Commission was authorized to 

establish two not-for-profit corporations to administer certain 

functions of the universal service program for schools, libraries, and 

rural health care providers.120 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, the identity of the incorporator was not 

120The 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).
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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, involves the FCC in 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, but nowhere authorizes 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.”

GAO held that this admittedly broad but nevertheless general 

authority is 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, stand for the proposition that the FCC may 

invoke section 4(i) to disregard specific requirements of laterenacted statutes. Citing Lebron v. National R.R. Pass’r 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 for the creation of various entities operating under 
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its direction. One of those entities was FADA, created pursuant to 

statutory authority to organize new federal savings and loan 

associations. Problem was, GAO felt 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, 

March 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 the FSLIC in managing and 

disposing of assets. It was hard to escape the conclusion that the 

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 its 

creation exceeded the Bank Board’s authority.121 In addition to 

B-226708.4 cited above, see B-226708.3, December 12, 1988, 

B-226708.2, September 29, 1988, B-226708, September 6, 1988, and 

Failed Thrifts: No Compelling Evidence of a Need for the Federal

Asset Disposition Association, GAO/GGD-89-26 (December 1988). 

A corporation created without legislative authority can be, in effect, 

“ratified” by subsequent legislation. For example, in 21 Comp. 

Gen. 928 (1942), the Virgin Islands case discussed earlier, although 

the corporation 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 situation, but GAO did not regard it as rising to 

the level of congressional ratification. B-226708, September 6, 1988, 

at 12.

121FADA 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. 

FIRREA also abolished both the Federal Home Loan Bank Board and the FSLIC. Id. 

§ 401, 103 Stat. 354. 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 Moe 1995, supra note 41, at 22-26; Seidman 

1988, supra note 71, at 26. 
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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 

Corporation Control Act. For example, the Reconstruction Finance 

Corporation, described briefly earlier, was so authorized and did in 

fact create several other government corporations.122 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 mixed-ownership 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 recognized that specific statutory 

authority was required.123

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, September 30, 1938; A-71172, February 26, 1936.

122Reconstruction Finance Corporation Act, § 5d, 47 Stat. 5 (1932), as amended, Act 

of June 25, 1940, 54 Stat. 572, 573. 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, supra note 118, at 10-14.

12312 U.S.C. §§ 2211 and 2212; H.R. Rep. No. 96-1287, at 23, 42 (1980), reprinted in

1980 U.S.C.C.A.N. 7095, at 7106, 7125 (accompanying report of House Agriculture 

Committee).
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4. Management

a. Government Corporation 

Control Act

(1) Origin

Many of the government corporations 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 govern the management of government 

corporations.” Congress Should Consider Revising Basic Corporate

Control Laws, GAO/PAD-83-3, at 3 (April 6, 1983); 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.” Id. Government 

corporations “had gotten out of hand, in both their number and their 

lack of accountability.” Lebron, 513 U.S. at 389. 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 two-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.124 This became the blueprint for what was to become 

the Government Corporation Control Act.

The first legislative step to implement these recommendations was 

the so-called George Act, Act of February 24, 1945, ch. 4, § 5, 59 Stat. 

5, 6. 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 

124S. Doc. No. 78-227, supra note 118, at 30.
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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 mixedownership, 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 given 

corporation could agree to pick up the audit tab. (Why it might want 

to do so is not clear.)

The audit requirements of the George Act were superseded on 

December 6, 1945, when Congress enacted the Government 

Corporation Control Act (GCCA), Act of December 6, 1945, ch. 557, 

59 Stat. 597, codified at 31 U.S.C. §§ 9101-9110. 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.125 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.”126 The Control Act addresses 

budget controls, financial controls, and audit controls.

(2) Definitions

As noted earlier, the Government Corporation Control Act made no 

attempt to define the term “government corporation.” Instead, it 

merely declared that there were two types: the wholly owned 

government corporation and the mixed-ownership government 

corporation. See 31 U.S.C. § 9101(1). The law 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 

125H.R. Rep. No. 79-856, at 3 (1945). An unimpressed Dr. Seidman has called the law 

the “government corporation de-control act.” Seidman 1991, supra note 86, at 41; 

Moe 1995, supra note 41, at 7.

126GCCA, § 2, 59 Stat. 597. 
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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, 

Central Liquidity Facility of the National Credit Union 

Administration, Resolution Funding Corporation, and the former 

Resolution Trust Corporation. 31 U.S.C. § 9101(2).

In trying to understand the two types, the plain meaning of the law’s 

language is the proper starting point, although in this instance it 

doesn’t help very much. The House report accompanying the 

original Control Act 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.”

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.”127

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 mixedownership government corporation when in fact it operated solely 

127NAPA 1981, supra note 51, at 21. An example of such a transition is discussed in 

B-219801, October 10, 1986.
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and exclusively under direct annual appropriations from Congress, 

the same as any non-corporate agency.128

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.129 Of course, Congress remains free to create 

corporations wholly outside the Control Act 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 

Control Act.

The express language of the Control Act 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, all 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 Control 

Act’s list of wholly owned corporations, apparently out of a desire to 

remain subject to the wholly owned provisions of the Control Act. 

(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. 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—mixed-ownership—especially since the Control Act 

designations do not purport to apply to other laws.

128Is the Administrative Flexibility Originally Provided to the U.S. Railway

Association Still Needed?, GAO/CED-78-19, at 2 (February 22, 1978). The U.S. 

Railway Association was created by Pub. L. No. 93-236, title II, 87 Stat. 985, 988 

(1974). The mixed-ownership designation was section 202(g), 87 Stat. 992. A typical 

appropriation was Pub. L. No. 94-134, 89 Stat. 695, 709 (1975). It was abolished in 

1987. See 45 U.S.C. § 1341(a).

129See Budget Glossary Exposure Draft, supra note 67, at 57, 86. 
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The Government Corporation Control Act 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 the contemplation 

that the act would be made applicable. 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 contemplation has met with limited success. Of the 30 

corporations created by Congress from the mid-1960s to the mid1980s, seventeen were not made subject to the Government 

Corporation Control Act. GAO/PAD-83-3, at 5; Harold Seidman and 

Robert Gilmour, Politics, Position, and Power at 285 (Oxford Univ. 

Press, 4th ed. 1986).

(3) Budget provisions

A key feature of the Government Corporation Control Act 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 accompanying 

committee reports attempt 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 
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to determine the form and content of the corporate budgets. 

31 U.S.C. § 9103(a).130 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 OMB’s guidance, see OMB Circ. No. A-11, 

§§ 32, 34.4, 36.3 (1998). For examples of what this all looks like in 

real life, see Appendix to the Budget of the United States

Government for Fiscal Year 1999, at 92 (Federal Crop Insurance 

Corporation), 98 (Commodity Credit Corporation), 642 (Pension 

Benefit Guaranty Corporation), and 1141 (Tennessee Valley 

Authority).

Congress then considers the budget programs for wholly owned 

government corporations along with the rest of the federal budget, 

which includes, as and to the extent necessary or appropriate, 

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 1998 Department of Transportation and 

Related Agencies Appropriations Act, Pub. L. No. 105-66, 111 Stat. 

1425, 1439 (1997):

“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.

130The source provision is much clearer on this point. See GCCA, § 102, 59 Stat. 598. 

Section 102 also uses the terms “budget program” and “plan of operations,” which 

appear to be synonymous with “business-type budget” for GCCA purposes.
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The President may include with the budget submission a 

recommendation that a wholly owned corporation be treated as a 

non-corporate agency for fiscal purposes. If Congress approves, the 

corporation retains its corporate identity, but is thereafter subject to 

the laws governing “appropriations, expenditures, receipts, 

accounting, and other fiscal matters” in the same manner as noncorporate agencies. 31 U.S.C. § 9109. (The quoted language comes 

from the source provision, GCCA § 107, 59 Stat. 599.)

Sections 9103, 9104, and 9109 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 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 mixedownership corporation (as defined in section 9102(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. 
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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, October 6, 1947.

Subsection (c) exempts the following:

• 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), and felt that 

they would “contribute toward a unification of the [government’s] 

depositary system” (H.R. Rep. No. 79-856, at 10).

Three years later, in 1949, Congress added 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. Of course, the funds 

are to be used only for authorized purposes.131 In reviewing a 

proposal under this provision, GAO’s concern is the diminution of 

internal controls. E.g., B-58312, November 14, 1950 (approving an 

unspecified proposal by the Tennessee Valley Authority because it 

would simplify procedures without lessening internal controls).

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., January 9, 1976. (The device tried in that case was an 

offsetting credit for imputed interest.)

131Independent Offices Appropriation Act, 1950, Pub. L. No. 81-266, § 309, 63 Stat. 

631, 662.
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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 the General Accounting Office. The original Government 

Corporation Control Act 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 mixedownership government corporation for any period in which 

government capital was invested in it, and report the results to 

Congress. GCCA §§ 105, 106, 202, 203, 59 Stat. 599-600.

The audit was to be a “commercial-type audit” rather than the 

customary governmental audit. The legislative history explained:

“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.

For further elaboration, see pages 95-96 of the House report and 

S. Rep. No. 79-694, at 8-9. In 1975, the audit requirement was reduced 

from every year to at least once every three years.132 GAO’s auditing 

of government corporations, first under the George Act and then 

under the Control Act, is widely credited with providing the stimulus 

132General Accounting Office Act of 1974, Pub. L. No. 93-604, § 601, 88 Stat. 1959, 

1962.
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for GAO to modernize its audit concepts and practices from the old 

“voucher auditing” system.133

The Government Corporation Control Act’s audit and reporting 

provisions were completely overhauled by section 305 of the Chief 

Financial Officers Act of 1990, Pub. L. No. 101-576, 104 Stat. 2838, 

2853, 31 U.S.C. §§ 9105 (audits) and 9106 (management reports). The 

audit is 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 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 (1994). 

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. Government Corporations: CFO Act Management

Reporting Could Be Enhanced, GAO/AIMD-94-73, at 4 n.2 

(September 1994). Audit reports are to be submitted to the head of 

the corporation and to the Government Operations/Governmental 

Affairs Committees. 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.

133See Frederick C. Mosher, The GAO: The Quest for Accountability in American

Government, 105-08 (Westview Press, 1979); Ellsworth H. Morse, Jr., The

Government Corporation Control Legislation of 1945, 10 GAO Rev. 11 (No. 4, 1975). 

GAO had long wanted the authority to audit government corporations. One of its 

first products under the Control Act was a 10-volume report on the audit of the 

Reconstruction Finance Corporation and its subsidiaries. Mosher at 108; Morse at 

15. 
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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.

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, however. GAO may 

(1) review any audit conducted under subsection (a)(1), reporting 

its results to Congress, OMB, and the head of the corporation, and 

(2) may conduct its own financial statement audit at the discretion 

of the Comptroller General or at the request of a congressional 

committee. 31 U.S.C. § 9105(a)(4).

The original Corporation Control Act prohibited government 

corporations from using their funds to pay for private audits. GCCA 

§ 301(d), 59 Stat. 601. This was intended to prevent duplication of 

efforts during the time that the law required GAO to conduct the 

audits. B-205488-O.M., January 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). Subsection (a)(4) provides that an 

audit by GAO under that subsection will be in lieu of the otherwise 

required Inspector General audit. Under subsection (c), the GAO 

audit will also be in lieu of any GAO financial transaction audit 

required under any other law.

Subsection (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 that is required by another law. Id. 

Reconciling Control Act 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. 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 
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can be satisfied by a financial audit, it can also extend to a full 

program audit. B-200951-O.M., December 24, 1980, as clarified by 

B-200951-O.M., May 11, 1981.

A GAO audit under the Government Corporation Control Act is 

financed initially from GAO’s own appropriations, but its “full 

cost. . . as determined by the Comptroller General” must be 

reimbursed by the corporation. 31 U.S.C. §9105(a)(5).134 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 indirect costs, including overhead. B207203-O.M., supra; B-96792, August 10, 1950 (in which GAO billed 

Federal Prison Industries for every last penny in its administrative 

expense allocation). Subsection (a)(5) further requires that the 

reimbursements be deposited as miscellaneous receipts. This was 

superseded by a seemingly permanent proviso attached to GAO’s 

appropriation in the Legislative Branch Appropriations Act, 1995, 

Pub. L. No. 103-283, 108 Stat. 1423, 1440 (1994), permitting GAO to 

credit the reimbursements to its then-current appropriation, to 

remain available until expended. Congress can then, as it did in Pub. 

L. No. 103-283, appropriate a specific sum from the “no-year” 

account for use during the current fiscal year.

The original Control Act 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. GCCA §§ 106 and 203, 59 Stat. 599-600. That reporting 

requirement displaced GAO’s authority to disallow corporate 

expenditures. B-58302, April 29, 1947; 37 Comp. Gen. 666, 668-69. 

The reporting language currently contained in the GCCA, in 

31 U.S.C. § 9105(a)(4)(B), is more general—GAO shall report “the 

results of the review and make any recommendation [it] considers 

134Mandatory 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, 

enacted just two months after the George Act.
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appropriate.” It certainly is broad enough to include the elements 

the 1945 law 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 mixedownership, 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).

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, Dr. Moe has written:

“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.”135

Dr. Seidman agrees, 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.”136 There are, of course, opposing views. According 

to Marshall Dimock, an early observer of government corporations, 

“[a]n effective board of directors is the key to program success.”137

135Moe 1983, supra note 48, at 3-4.

136Seidman 1952, supra note 42, at 92.

137Marshall E. Dimock, Government Corporations; A Focus of Policy and

Administration (Part I), 43 Am. Pol. Sci. Rev. 899, 915 (1949).
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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 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. During the 19th 

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 R.R. Pass’r

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, 491. 

The 20th century saw considerable variation in managerial 

structure, mostly within a framework of increased government 

involvement. In 1902, as part of the statute authorizing construction 

of the Panama Canal (32 Stat. 481), Congress authorized the 

President to purchase all stock and property of the Panama Railroad 

Company, making the government the sole shareholder. 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 Government Corporation Control Act, is 

a board of directors, all of whom are appointed 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 
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Development Foundation,138 Commodity Credit Corporation, 

Export-Import Bank, and the Tennessee Valley Authority.139 In one 

instance, the directors are appointed by a department head. See

7 U.S.C. § 1505(a) (Federal Crop Insurance Corporation’s directors 

appointed by Secretary of Agriculture). The Tennessee Valley 

Authority legislation includes an interesting qualification: directors 

must “profess a belief in the feasibility and wisdom” of the TVA Act 

of 1933. 16 U.S.C. § 831a(h).

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. 

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 directorial 

functions even though 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 

138The African Development Foundation is not listed in the Government 

Corporation Control Act, but its enabling legislation makes it subject to the Act’s 

provisions for wholly owned corporations. See 22 U.S.C. § 290h-6.

139Our source for these examples is Government Corporations: Profiles of Existing

Government Corporations, GAO/GGD-96-14 (December 1995). The information for 

each corporation includes a “management structure” summary and a citation to the 

corporation’s enabling legislation. 
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department or agency and under the control of the head of that 

department or agency. For example, 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), 

5 U.S.C. App. I.) Each alternative—departmental placement or 

independence—has its supporters and there is no clear winner. The 

1981 report of the National Academy of Public Administration 

recommended that government corporations “should normally be 

placed under the head of a cabinet department,”140 but this has not 

been followed. Moe concludes that government corporations “may 

be placed virtually anywhere in the executive establishment. 

Organizational placement is not a distinguishing element for 

government corporations.”141

The enabling legislation will also provide for officers of the 

corporation. In probably the majority of instances, they are 

appointed by the President of the United States (e.g., 22 U.S.C. 

§ 2193, Overseas Private Investment Corporation), but in others they 

are appointed by the board of directors (e.g., 16 U.S.C. § 831b, TVA). 

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 collectively, that is, 

acting as a body. 25 Comp. Gen. 467 (1945). In contrast is the 

Corporation for National and Community Service. It has a board of 

directors (42 U.S.C. § 12651a), but the law further specifies that the 

Corporation “shall be headed by [a] Chief Executive Officer . . . 

appointed by the President” (42 U.S.C. § 12651c).

140NAPA 1981, supra note 51, at 61.

141Moe 1995, supra note 41, at 50.
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A board of directors can delegate power to an executive committee, 

but this has been construed to mean ordinary and routine matters, 

not radical departures from corporate policy. B-58302-O.M., 

September 14, 1949. This device cannot be used, however, to avoid a 

statutory quorum requirement. See B-197710-O.M., January 14, 1983. 

In that case, a government 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 of course be different if the statute 

permitted a majority of board members currently in office to 

constitute a quorum. Id.

As noted earlier, while the overwhelming majority of government 

corporations have boards of directors, a few do not. Moe identified 

three which, at the time he wrote, did not have boards of directors—

Government National Mortgage Association, Resolution Trust 

Corporation (since terminated), and Saint Lawrence Seaway 

Development Corporation.142 Another such corporation that was 

later created is the Community Development Financial Institutions 

Fund. Its management consists of a presidentially-appointed 

Administrator and advisory board. 12 U.S.C. § 4703.143

The appointment of most or all of a board of directors is most 

appropriate for corporations owned or controlled by the United 

States. When you move further and further away from this model, 

the government’s managerial involvement—usually, but not 

always—diminishes. For example, in the typical governmentsponsored enterprise, the government will appoint some directors 

to make sure its voice will be heard, but the majority is appointed by 

non-government sources. Thus, the President appoints 5 out of 18 

142Id. at 58.

143For a couple of 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, 1321-94 (FY 1996). The proviso was dropped in fiscal 

year 1997. See Pub. L. No. 104-204, 110 Stat. 2874, 2907 (1996).
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Fannie Mae directors, 5 out of 18 for Freddie Mac, 5 out of 15 for 

Farmer Mac, and 7 out of 21 for Sallie Mae.144

One would expect a minimal federal managerial role in a federallychartered corporation expressly designated as not an agency or 

instrumentality of the United States. For example, the 

Communications Satellite Corporation (Comsat) was created by the 

Communications Satellite Act of 1962, Pub. L. No. 87-624, tit. III, 

76 Stat. 419, 423, to develop a commercial communications satellite 

system. It is expressly designated a “for profit” corporation and not 

an agency or establishment of the United States. 47 U.S.C. § 731. 

Befitting this status, Comsat was capitalized entirely with private 

funds.145 However, it was clearly intended to operate with 

government-conferred advantages. The statute declared that the 

United States participation in the global communications network 

would be through Comsat, “subject to appropriate governmental 

regulation,” whatever that means. 47 U.S.C. § 701(c). The law also 

directed agencies such as the National Aeronautics and Space 

Administration, the Federal Communications Commission, and the 

Department of State, to provide technical advice, cooperation in 

research and development, and other services to Comsat. 47 U.S.C. 

§§ 721, 742.

Comsat has a 15-member board of directors, only three of whom are 

government-appointed, the rest being elected by private 

shareholders. 47 U.S.C. § 733. The Attorney General determined that 

the presidentially-appointed directors held private posts and were 

not officers of the United States. 40 Op. Att’y Gen. 165 (1962). As 

such, these directors would owe their primary fiduciary obligation 

to the corporation, not the Government. Id. at 171. These directors 

would not necessarily represent the views of the President, or the 

public interest beyond that ordinarily expected of directors of a 

private corporation, although they certainly could do so. Id.

144Our source for these examples is Budget Issues: Profiles of GovernmentSponsored Enterprises, GAO/AFMD-91-17 (February 1991).

145Leazes, supra note 44, at 25-26.
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In terms of the government’s managerial role, somewhere in 

between the wholly owned corporation model and the Comsat 

model are the Corporation for Public Broadcasting and the Legal 

Services Corporation. Both are chartered as nonprofit corporations 

and are not to be regarded as agencies or establishments of the 

United States. See 47 U.S.C. § 396(b); 42 U.S.C. §§ 2996b and 

2996d(e)(1). Neither is subject to the Government Corporation 

Control Act. Nevertheless, perhaps because both are federallyfunded as well as federally-created and perform essentially 

governmental rather than commercial functions, their entire boards 

of directors are appointed by the President. 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. 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.”146 United States v. Nowak, 448 F.2d 134, 138 

(7th Cir. 1971). In fact, Congress has funded government 

corporations using a variety of sources and methods: direct 

appropriation of funds, federal borrowing, charges or user fees for 

services provided to the public, federal ownership of stock, and 

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, exactly the same as for an 

unincorporated agency. In its 1995 study, Government Corporations: 

Profiles of Existing Government Corporations, GAO found that, out 

of 24 corporations then listed in the Government Corporation 

146“Capitalize” in this context means simply “to furnish with capital, to provide 

capital for the [corporation’s] operation.” B-24827, April 3, 1942, at 11. 
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Control Act, 15 had received federal appropriations in fiscal year 

1994. GAO/GGD-96-14, at 21-22. As a general proposition, wholly 

owned corporations were more likely to receive direct 

appropriations than mixed-ownership corporations, although some 

mixed-ownership corporations received appropriations while some 

wholly owned corporations did not. In addition, several corporate 

entities not subject to the Control Act received appropriations. Id.

Direct appropriations may provide all or part of a corporation’s 

funding. Examples of government-created corporations fully funded 

by congressional appropriations are the Corporation for National 

and Community Service and the Legal Services Corporation.147 

Fully-funded corporations tend to be those with non-commercial 

functions. There is no nexus between full funding status and 

inclusion or exclusion from the Government Corporation Control 

Act. For example, the Corporation for Community Service is subject 

to the act, while Legal Services is not. An example of partial 

appropriations funding is the Commodity Credit Corporation. 

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.148 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. The appropriation cited above for the Corporation for 

National and Community Service is a simple lump sum; that for the 

Legal Services Corporation is a lump sum with a few earmarks.149 At 

147See, respectively, the Departments of Labor, Health and Human Services, and 

Education, and Related Agencies Appropriations Act, 1998, Pub. L. No. 105-78, 111 

Stat. 1467, 1509 (1997), and the Departments of Commerce, Justice, and State, the 

Judiciary, and Related Agencies Appropriations Act, 1998, Pub. L. No. 105-119, 111 

Stat, 2440, 2510 (1997).

148E.g., Agriculture, Rural Development, Food and Drug Administration, and Related 

Agencies Appropriations Act, 1998, Pub. L. No. 105-86, 111 Stat. 2079, 2091 (1997).

149See note 147, supra.
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what is perhaps the other extreme, at least for a government 

corporation, the 1988 appropriation for the Commodity Credit 

Corporation’s operating expenses consisted of 17 line items, plus 

limited transfer authority.150 The import of lump-sum and line-item 

appropriations in this context is no different than it is for 

unincorporated agencies.

Most corporate appropriations are definite in amount; some are not. 

For example, the Federal Crop Insurance Corporation’s 1998 

appropriation to the FCIC Fund was “such sums as may be 

necessary, to remain available until expended,” i.e., an indefinite, noyear appropriation.151 The Commodity Credit Corporation (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 

1998 appropriation was a current, indefinite appropriation (“[f]or 

fiscal year 1998, such sums as may be necessary”), but subject to a 

monetary ceiling.152 Since the CCC receives a direct appropriation 

for net losses, it is logical that net gains, should they ever occur, 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) (not illegal for a statute to 

require a government corporation to pay its surplus funds into the 

Treasury).

(2) Federal borrowing

Another funding method for the government corporation 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), 15 U.S.C. 

§ 713a-4 (Commodity Credit Corporation), and 7 U.S.C. § 947 (Rural 

150Pub. L. No. 100-202, 101 Stat. 1329, 1329-335 (1987).

151Pub. L. No. 105-86, supra note 148, 111 Stat. at 2091.

152Id.
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Telephone Bank). The Pension Benefit Guaranty (PBGC) provision 

just cited 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 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.”

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). Unused borrowing authority is a 

form of contingent liability. United States v. Nowak, 448 F.2d 134, 

138 n.4 (7th Cir. 1971). 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., 

September 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 in 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, it may be possible to 

go through an intermediary, the Federal Financing Bank (FFB). The 

FFB was created in 1973 to coordinate federal and federally assisted 

borrowings and thereby hopefully 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 Government Corporation Control Act, the FFB is 

subject to the act’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 
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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.

In 14 Op. Off. Legal Counsel 20 (1990), the Justice Department’s 

Office of Legal Counsel 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 governmentowned 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 
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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 

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, December 28, 1992; B-248647.2, April 24, 

1995.

As the 1995 opinion pointed out, a corporation (or unincorporated 

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, supra, at 3.

(3) Federal ownership of stock

The federal government has also funded government corporations 

by owning 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-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 
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issued and who may or must subscribe to it. For example, the 

federal government owns 100% of the capital stock of the 

Commodity Credit Corporation (15 U.S.C. § 714e), the ExportImport 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. 

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 St. 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 and 26 U.S.C. § 9505. 

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; B-280951, December 3, 1998.

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 15. 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 governmentcreated 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 
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government agencies for services rendered to it. For example, the 

Communications Satellite Act authorizes certain services to be 

provided to Comsat on a reimbursable basis, but does not further 

address how the charges are 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.

A statutory authorization may also be a limitation. The ExportImport 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 subsistence expenses incurred by its officers or 

employees. Given this structure, GAO found that the statute does 

not authorize the Bank to require its customers to pay the travel and 

subsistence expenses. B-272254, March 5, 1997.

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 is 

commonly found in government-sponsored enterprises. 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); 12 U.S.C. 

§ 2279aa-4 (Farmer Mac); and 20 U.S.C. § 1087-2(f) (Sallie Mae). 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.) Other federally-created 

corporations which are chartered as private may be stock (Comsat) 

or nonstock (Corporation for Public Broadcasting) corporations. As 

with the GSEs, the details are found in the enabling legislation. E.g., 

47 U.S.C. § 734(a) (Comsat stock to be “sold in a manner to 

encourage the widest distribution to the American public”).

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 
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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 direction. 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 under the head “Nature of the Government’s 

`Obligation.” 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 concluded that Congress’ choice of the corporate form did 

not alter the status of its obligations. 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). 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 concern 

behind 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), 

reprinted in 1973 U.S.C.C.A.N. 3153, 3154-55.
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(2) Market perception of implied backing by United States

“As one wag puts it: With GSEs, you privatize the profits and socialize the risk.”153

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) 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, Congress has enacted express disclaimers. For 

example, 12 U.S.C. § 4503 disclaims any federal guarantee of the 

obligations or liability of Fannie Mae, 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.)

Searching the statutes for guarantee or disclaimer language 

addresses only the presence or absence of a formal, “official” 

obligation. Even in the case of a disclaimer, virtually every analyst or 

commentator who has examined GSEs has emphasized the 

existence of a market perception of implied backing by the United 

States because, presumably, the GSE will not be allowed to fail. 

Dr. Moe states, very simply, that “[t]he Federal Government 

implicitly guarantees the value of GSE obligations and mortgagebacked securities.”154 This implicit guarantee has been called the 

“distinguishing characteristic”155 of GSEs and their “most valuable 

153Ronald C. Moe, The ’Reinventing Government’ Exercise: Misinterpreting the

Problem, Misjudging the Consequences, 54 Pub. Admin. Rev. 111, 113 (1994). 

154Moe 1995, supra note 41, at 38.

155Moe and Stanton 1989, supra note 69, at 322; Ronald C. Moe, Liabilities of the

Quasi Government, 20 Gov’t Exec. 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, supra note 41, at 38. 
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perk.”156 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.157

The implicit guarantee results from the facts that GSEs are regarded 

as instrumentalities of the United States, and their obligations have 

many of the characteristics of Treasury obligations.158 As another 

commentator has pointed out, some of the most prominent private 

credit-rating agencies “have rated enterprise securities based on the 

strength of this implied government guarantee, in spite of the 

knowledge that no actual guarantee exists.”159

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.160

(3) Statutory controls

In addition to the budget, audit, and account controls previously 

described, the Government Corporation Control Act, 31 U.S.C. 

§ 9108, addresses the debt obligations of all government 

corporations, wholly owned and mixed-ownership, unless 

specifically exempted. Under subsection (a), a government 

corporation may not issue or offer obligations to the public unless 

the Secretary of the Treasury has approved161 the form, 

156Nitschke, supra note 68, at 1580. 

157Froomkin, supra note 49, at 580.

158The common characteristics are listed in Stanton, supra note 70, at 404-05.

159Lavargna, supra note 69, at 1011.

160See, e,g., Budget Issues: Profiles of Government-Sponsored Enterprises, 

GAO/AFMD-91-17, at 7 (February 1991); Lavargna, supra note 69, at 1010-11; 

Stanton, supra note 70, at 404. 

161The 1982 recodification of Title 31 changed the original “approve” (see 59 Stat. 

602) to “prescribe.” We think “prescribe” could be a bit misleading in that it often is 

used to refer to the issuance of regulations, whereas “approve” clearly includes ad

hoc action.
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denomination, maturity, and interest rate of the obligations and the 

conditions to which they will be subject; the manner and times of 

their issuance; and the price for which they will be sold.

Under subsection (b), a 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.

Subsection (c) authorizes the Secretary of the Treasury to delegate 

functions under subsections (a) and (b) to any officer or employee 

of any federal agency.

Subsection (d) contains the exemptions. The approval requirements 

of subsections (a) and (b) do not apply to certain named mixedownership government corporations, nor to any mixed-ownership 

corporation from which government capital has been entirely 

withdrawn.

Finally, a provision added to the Control Act 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” (they mean the same thing) expenditures found to be illegal. 

GAO’s application of this authority underwent major evolution 

during the third quarter of the 20th century. Now, agencies retain 

their own accounts, keeping them available for audit,162 and an 

162GAO advised government corporations to this effect in 27 Comp. Gen. 429 (1948).
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account is regarded as “settled” by operation of law after three years 

except for unresolved items. See 31 U.S.C. § 3526(c). While account 

settlement is nowhere near what it used to be, it is nevertheless 

relevant in determining such things as (1) the kinds of audit GAO is 

authorized to perform, (2) who may request a legal decision from 

GAO,163 and (3) the application of the accountable officer relief 

statutes.

During the decades preceding enactment of the Government 

Corporation Control Act, 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.164 In 1927, the Supreme Court decided the 

case of United States ex rel. Skinner & Eddy v. McCarl, 275 U.S. 1 

(1927). A contractor sought a writ of mandamus to compel GAO to 

consider its claim against the Emergency Fleet Corporation. The 

Court held that the claim was not within GAO’s claims settlement 

jurisdiction. The executive branch seized on this case to declare as 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 that question. B-29072, November 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. As 

described earlier, the Control Act 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. 

163In the early days, when large numbers of employees were poring over every 

account, GAO was more likely to turn down a request from an entity not within its 

account settlement jurisdiction. E.g., B-112540, November 25, 1952. In more recent 

times, as GAO has come to view its decision function more as providing a service, 

this has become less likely. 

164Many of the squabbles are recorded in John McDiarmid, Government

Corporations and Federal Funds (Univ. of Chicago Press, 1938).
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Although some decisions reflect ambivalence,165 GAO tended to 

view this as supplanting its account settlement authority with 

respect to corporations. E.g., B-58302, April 29, 1947 (former 

Reconstruction Finance Corporation); B-146820, June 2, 1967 

(CCC), B-150556, May 29, 1968 (CCC); B-152534-O.M., December 4, 

1963 (Panama Canal Company).

The second development was the refinement of certain charter 

provisions and a trend toward standardization. Congress has 

authorized most post-Corporation Control Act corporations to 

determine the character and necessity of their expenditures. An 

example is the Federal Crop Insurance Corporation provision:

“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. (The “final and conclusive” part is 

probably redundant.) GAO views the “character and necessity” 

provision as ousting its account settlement authority. E.g., 

B-226708.3, December 12, 1988 (former FSLIC); B-200103, March 5, 

1981 (CCC); B-34706, December 5, 1947 (generally). 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., July 1, 1955. An example is Federal Prison 

Industries, whose legislation provides:

165The 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 

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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“Accounts of all receipts and disbursements of the corporation shall be rendered to 

the General Accounting Office for settlement and adjustment, as required by the 

Comptroller General.” 18 U.S.C. § 4126(d).

See B-98983-O.M., December 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, January 26, 

1983; B-114850-O.M., September 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, 

including all of the cases cited in the preceding paragraphs, have 

involved wholly owned corporations. For example, with respect to 

the Department of Housing and Urban Development when carrying 

out those functions specified in 31 U.S.C. § 9101(3), see B-182653, 

January 16, 1975; B-181961/B-182280, November 26, 1974; 

B-99262-O.M., January 11, 1951. If this is true for wholly owned 

corporations, it surely must be true for mixed-ownership 

corporations like the Federal Deposit Insurance Corporation 

(B-210496, February 1, 1983), and to corporations created and 

funded by the government but designated as “private,” like the Legal 

Services Corporation (B-241591, March 1, 1991; B-203901, July 9, 

1982; B-204886, October 21, 1981).166

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, and would be accountability to the corporation, not the 

United States. B-88578, August 21, 1951. See also B-83360-O.M., 

166Several 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.
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April 8, 1949 (Certifying Officers’ Act not applicable to Federal Crop 

Insurance Corporation).167

b. Status of Funds 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 

amounts to a permanent or continuing appropriation of those 

receipts. GAO, supported by at least one court of appeals decision, 

has consistently applied this principle to a variety of revolving 

funds, user fee accounts, proceeds from sales of goods or services, 

etc. Further support is found in the Title 31 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). The principle is explored in more detail, 

with case citations, in Chapter 2 under the heading “What 

Constitutes an Appropriation.”

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 in the following situations:

• Tolls assessed and collected by the St. Lawrence Seaway 

Development Corporation. B-193573, January 8, 1979, as modified by

B-193573, December 19, 1979, and restated in B-217578, 

October 16, 1986. (As noted elsewhere, the Corporation stopped 

being funded from tolls in the mid-1990s.)

• The Prison Industries Fund operated by Federal Prison Industries, 

Inc., the receipts of which consist primarily of proceeds from the 

167GAO 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, October 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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sale of FPI products and services. 60 Comp. Gen. 323 (1981);

B-230304, March 18, 1988.168

• Revolving funds of the Pension Benefit Guaranty Corporation in its 

capacity as insurer of private pension plans. B-223146, October 7, 

1986; B-217281-O.M., March 27, 1985.

• 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, February 27, 1987 (CCC); B-193573, 

December 19, 1979 (St. Lawrence Seaway Development 

Corporation).

It makes no difference whether the statutory language authorizing 

retention and use is found in an appropriation act or in other 

legislation. B-193573, December 19, 1979, at 7. 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, mixed-ownership, GSEs, so-called “private,” etc.), 

the wholly owned government corporation is closest to the 

unincorporated agency.

This being the case, application of the principle to a mixedownership government corporation, although possible in theory and 

perhaps even desirable in some instances, would seem less 

appropriate. Thus, assessments levied on insured banks by the 

Federal Deposit Insurance Corporation and used to pay the FDIC’s 

operating expenses are not regarded as “appropriated funds.” 

23 Comp. Gen. 83 (1943); B-20892, December 11, 1941; 

168No less a supporter of corporate autonomy than John McDiarmid has referred to 

the Prison Industries Fund as a “permanent appropriation.” See McDiarmid, supra

note 45, at 55.
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B-214157-O.M., April 2, 1984, at 8-9. See also A-91137, April 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 “mixedownership” corporation because they all pre-date the explicit 

legislative recognition of that term in the 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., March 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 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).169 The funds of terminated plans PBGC 

administers are trust funds, privately created and privately funded, 

and are not treated as 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, October 7, 1986.

In the case of an unincorporated agency, the question whether 

certain funds are appropriated funds has very significant 

consequences. If they are, “they 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 

169An 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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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.170 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,” non-corporate 

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, December 19, 1979. 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 St. Lawrence 

Seaway Development Corporation—

170“[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, December 5, 1947, at 4 (Letter from 

Comptroller General to committee chairman).
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“shall determine the character of and the 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.

The first thing a “character and necessity” provision does is permit 

the corporation to avoid the various nonstatutory and “policy rules” 

the rest of the government follows. The one that comes immediately 

to mind is entertainment. Of course the congressional approach to 

providing funds for entertainment is clear statutory recognition of 

the rule, but there is nevertheless no statute which directly says 

“Thou shalt not party at the taxpayers’ expense.” Consequently, 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 under the “entertainment” heading, 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 entertainment rules. B-270199, August 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.)

A corporation statutorily designated as “private,” even though 

government-created 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’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 grouped in Chapter 4 

under the heading “Personal Expenses and Furnishings.” Examples 

are:

• Physical examinations for certain employees of the St. Lawrence 

Seaway Development Corporation. 41 Comp. Gen. 531 (1962).

• Expenses necessary to qualify an employee to do his or her job. 

B-2835, April 18, 1939 (qualification as notary).
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• 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, 

November 29, 1977 (letter report).

Still another item of expenditure for which funds of a non-corporate 

agency are unavailable, but which is permissible under a 

corporation’s “character and necessity” power, is hazard insurance 

on various types of property. 16 Comp. Gen. 453 (1936) (wholly 

owned corporation); B-200103, March 5, 1981 (CCC, also wholly 

owned); A-51647/B-15611, January 12, 1942 (unincorporated 

commission with similar statutory discretion). See also 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. Other examples of 

expenditures found to be within the scope of a “character and 

necessity” provision are a memorial plaque by the Pennsylvania 

Avenue Development Corporation (64 Comp. Gen. 124 (1984)); 

publicity photographs, including 47 pictures of one official (A-57964, 

January 30, 1935);171 improvements to nonfederal property (B-11279, 

August 15, 1940); contracting for personal services to conduct a 

management survey (33 Comp. Gen. 143 (1953)); contracting for 

personal services to sell crop insurance on a fee or commission 

basis (B-48591, March 29, 1945); and the use of air travel credit cards 

back when GAO was cautioning against them (B-150282, October 21, 

1966).

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, December 5, 1947, at 3:

“Where [’character and necessity’] language appears in the act chartering the 

corporation, there can be no question but that Congress has determined that the 

171Some of the cases cited in this portion of the text, such as A-57964 and the two 

personal services cases, involve a statutory variation which confers “character and 

necessity” authority “without regard to any other provisions of law governing the 

expenditure of public funds.” The effect of the “without regard” language will be 

addressed later in the text. In the cases cited here, the presence of a “without 

regard” clause was incidental and the results would have been the same without it. 
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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 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 under the “Printing and 

Binding” heading of this part.) Two additional examples, noted in 

B-193573, December 19, 1979, are 5 U.S.C. § 3107 (prohibiting use of 

appropriated funds to pay publicity experts) and 31 U.S.C. § 1345172

(prohibiting use of appropriated funds to pay lodging or feeding of 

non-government persons at meetings or conventions). See also

B-7067, July 10, 1940, and B-3163, April 24, 1939 (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 

(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., April 10, 1951 

(Federal Intermediate Credit Banks, subsequently converted to 

mixed-ownership but listed as wholly owned in the original 

Corporation Control Act); B-58305-O.M., March 8, 1951 (former 

Production Credit Corporation); B-58306(2)-O.M., November 14, 

1950 (CCC); B-58318-O.M., October 27, 1950 (Export-Import Bank); 

B-90250-O.M., March 28, 1950 (corporate functions of Federal 

Housing Administration).173 Similar statements appear in a number 

of more recent items. E.g., B-217578, October 16, 1986.

172A 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.

173These are from a series of memoranda issued by the Comptroller General to GAO 

audit divisions shortly after enactment of the Corporation Control Act, when GAO 

was refining its ability to conduct corporate audits.
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The formula for mixed-ownership government corporations is 

similar except for the final element. Some earlier mixed-ownership 

corporations included the “character and necessity” authority or its 

functional equivalent. 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”). More recent ones tend 

not to have it. E.g., Pub. L. No. 93-236, title II, 87 Stat. 985, 990 (the 

now-defunct U.S. Railway Association). For a mixed-ownership 

corporation, at least one not receiving direct appropriations, it 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, 

December 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 recurring appropriation act provision restricting the 

funding of interagency groups (B-174571, January 5, 1972). 

Attempting to generalize, the first three elements of the formula 

would be the same as for a wholly owned corporation: a mixedownership corporation is subject to its own statutory charter, the 

Government Corporation Control Act, if and to the extent 

applicable, and applicable provisions in appropriation acts. In 

addition, for the fourth element, it is subject to post-charter laws 

specifically applicable to mixed-ownership corporations. See

B-58300-O.M., November 30, 1950 (FDIC).

(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 our 

discussion of account settlement. It confers the “character and 

necessity” power, “without regard to the provisions of any other 

laws governing the expenditure of public funds.” Clearly, as a 

matter of basic statutory construction (or, reading the English 

language), this version must confer more than the basic “character 

and necessity” clause that does not include the “without regard” 

language. Exactly what that “more” is has been the subject of 

surprisingly little attention, at least in accessible research materials. 

The question was squarely presented to GAO in 1946 by the (then) 
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Bureau of the Budget, but GAO declined to answer. B-56550, 

March 28, 1946. While we have found no definitive discussion of the 

issue, the rule—subject to exceptions, we are sure—appears to be 

that the “without regard” language 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), at least laws on the books at the time 

the “without regard” language was enacted.174

For example, in B-94115, November 15, 1950, GAO reviewed the 

“without regard” clause of the Reconstruction Finance Corporation. 

Clearly, 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, GAO 

added, 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 GAO’s auditors essentially the 

same thing with respect to the corporate functions of the Federal 

Housing Administration, B-90250-O.M., March 28, 1950. A good 

example of how this works is discussed below in connection with 

apportionment.

A government corporation with a “character and necessity” 

provision which includes the “without regard” clause has 

considerable discretion indeed. The discretion is not unlimited, 

however. 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).

It does not 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 

174We 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 under the 

“Printing and Binding” heading of this Part.
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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. Other examples are 14 Comp. Gen. 638 (1935) (use of 

housing assistance funds to conduct an advertising campaign 

designed to drum up customers for the program); B-44435, 

October 5, 1944 (making a payment another party is contractually 

obligated to make).

Neither is discretion license. It is a conscious, rational choice 

between two or more alternatives. As such, it 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. at 700. See also 18 Comp. Gen. 479 

(1938); B-56550, March 28, 1946. This does not mean that the 

machinery must be invoked for each individual transaction. In some 

cases, the exercise of discretion on a categorical basis is legitimate, 

as long as done under the established procedures and documented. 

E.g., A-98289/A-60495, January 18, 1939 (formal board resolution 

that requirement to 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., 

November 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. 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.” 60 Stat. at 811-12.
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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 have retained the 

appropriate definitional language. E.g., 5 U.S.C. §§ 3109 

(employment of experts and consultants) and 7903 (purchase of 

special clothing or protective equipment). Sometimes it is necessary 

to look beyond the provision itself. For example, the Government 

Employees Incentive Awards Act superseded similar authority in 

section 14 of the Administrative Expenses Act, but did not narrow 

its scope. The Incentive Awards Act applies to “an Executive 

agency.” 5 U.S.C. § 4501(1)(A). 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 United States (5 U.S.C § 103(1)). The travel 

expense authority of 5 U.S.C. § 5724 requires a similar analysis. 

Section 5724(a) refers to “agency.” Section 5701 defines agency as 

including “Executive agency” but not “Government controlled 

corporation.” Applying 5 U.S.C. § 103 again, section 5724 is 

applicable to wholly owned government corporations.

Some of the provisions of the Administrative Expenses Act are now 

in Title 31. For example, section 11, 60 Stat. 809, 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.” 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 

government corporations. B-210555.11, April 1, 1986. The home-towork statute was completely overhauled later in 1986. The revised 

statute expressly applies to government corporations as defined in 

5 U.S.C. 103 plus mixed-ownership corporations. 31 U.S.C. 

§§ 1344(g)(2)(D), (E), (F).
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Still another provision of the Administrative Expenses Act, section 

9, 60 Stat. 809, amended the statutory requirement for advertising 

now found in 41 U.S.C. § 5. Since it uses the word “appropriation,” it 

applies to wholly owned corporations by virtue of section 18, which 

itself is now found at 41 U.S.C. § 5a.

A similar situation occurs in the case of 31 U.S.C. § 1512, the 

apportionment requirement. 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” (64 Stat. 766). The 1982 recodification of Title 31 

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 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 FDIC, however derived, not subject to 

apportionment).

(4) Appropriation act provisions

Another source of expressly applicable laws is appropriation acts. 

Worthy of note is section 609 of the Treasury and General 

Government Appropriations Act, 1998, Pub. L. No. 105-61, 111 Stat. 

1272, 1310:

“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 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: Provided, That in the event 
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any functions budgeted as administrative expenses are subsequently transferred to 

or paid from other funds, the limitations on administrative expenses shall be 

correspondingly reduced.” (Emphasis added.)

The ancestor of this provision first appeared in the very first 

Government Corporation Appropriation Act (Act of July 20, 1946, 

ch. 589, § 301, 60 Stat. 586, 595), enacted a short six months after the 

Corporation Control Act. Since 1972, it has been carried in the 

Treasury-General Government appropriation acts in the title 

containing the government-wide general provisions, so “this head” 

refers to that title (e.g., Title VI in the 1998 act). Therefore, there may 

be other laws expressly applicable to government corporations, by 

virtue of the underscored language, in the pertinent title each year. 

Although this provision has been around since 1946, GAO does not 

appear to have addressed the underscored language in writing.

There is no government-wide definition of “administrative 

expenses.” Generally, the term refers to “overhead” type expenses 

like 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 like 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, March 12, 1942, 

at 5. As the last sentence of the general provision quoted above 

demonstrates, a corporation has considerable discretion in 

allocating items of expense. 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 (1997) (Pension Benefit Guaranty Corporation); Pub. L. 

No. 105-118, 111 Stat. 2386, 2387 (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.” This language has been held to embrace both wholly 
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owned corporations (B-114823, December 23, 1974, Export-Import 

Bank) and mixed-ownership corporations (B-164497(5), March 10, 

1977, U.S. Railway Association).

(5) Other Title 31 provisions

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 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. B-223857, 

February 27, 1987 (CCC); B-135075-O.M., February 14, 1975 (InterAmerican Foundation). In B-223857, GAO found also that the CCC 

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-175155, July 26, 1976, at 11 (Amtrak).

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., B-123943-O.M., July 1, 1955 (Institute of Inter-American 

Affairs); 34 Comp. Gen. 825 (1954) (GAO’s initial guidance on 

implementing the then-new recording statute). See also United
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States v. American Renaissance Lines, 494 F.2d 1059 (D.C. Cir. 1974) 

(CCC), and 37 Comp. Gen. 691 (1958) (St. Lawrence Seaway 

Development Corporation), in which the court and GAO, 

respectively, treated the statute 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 

(68 Stat. 830); section 1306 is the “this head” provision for that year.

The Economy Act, 31 U.S.C. § 1535, applies at least to wholly owned 

government corporations. The corporation can be the requisitioning 

agency (13 Comp. Gen. 138 (1933); B-27842, August 13, 1942), or the 

performing agency (B-116194, October 5, 1953; B-39199, January 19, 

1944; A-46332, January 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,” Act of July 11, 1947, ch. 222, 61 Stat. 

308, now codified in 31 U.S.C. § 3328, has been held applicable to a 

government corporation with “character and necessity” power 

including the “without regard” clause. B-70248, September 1, 1950. 

Naturally, it would apply to corporations without that authority. 

B-70248, November 6, 1947; B-100893-O.M., March 27, 1951. This act 

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.” 61 Stat. 308. The 1982 recodification dropped the definitional 

language. Nevertheless, in view of the original language, the statute 

should still apply to government corporations.

The 1950 decision cited in the previous paragraph 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 that a “without regard” clause permits the 

corporation to avoid expressly applicable laws already in existence. 

The answer is that it depends on what kind of law you’re talking 

about. The decision stated:
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“[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.” B-70248, September 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 

unless waived pursuant to the latter authority. 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, the use of 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 can be a serious impediment. True as 

that may be, even a government corporation needs statutory 

authority to overcome 31 U.S.C. § 3302(b); corporate status alone is 

not enough. 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).175 Revolving 

funds are covered in Chapter 15 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. 

175For the distinctions between government corporation revolving funds and those 

of unincorporated agencies, see Moe 1995, supra note 41, at 62.
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For example, the statute for the Overseas Private Investment 

Corporation, 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% 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 CCC 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 have described that term earlier—of a 

government corporation. E.g., 30 Op. Att’y Gen. 508 (1915). In that 

case, the Attorney General advised the Panama Railroad that setting 

rates below the cost of service would amount to giving away 

corporate assets and improperly diverting the company’s funds, 

“irrespective of whether we observe or disregard the corporate 

fiction.” Id. at 509.

The analytical approach to purpose availability is essentially the 

same for a corporation as for other 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, August 14, 1991. While FPI is generally supposed to seek 
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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 work 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 the “appropriated funds” of 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).

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. In addition, it has the power to make its own final 

and conclusive decisions. But 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 

and not those of non-corporate agencies—along with the “public 

policy” concerns noted earlier, may be said to define the outer limits 

of a corporation’s discretion.

An illustration of how all this can work is B-48184, March 14, 1945. 

The Federal Housing Administration 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 

to use 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. The shopping 
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center, said FHA, 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. 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 day-to-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 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 

“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. 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 
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(then) Polish People’s Republic. While the CCC had not strictly 

complied with its own regulations, the deviations were essentially 

on matters of procedure, which the CCC could waive. Therefore, 

GAO found nothing objectionable. B-208610, September 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. 

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, 

September 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 
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statute, an earlier version of 7 U.S.C. § 1446(c), provided that price 

support “shall be provided through loans on, or purchases of, milk 

and the products of milk and butterfat.” Some within Agriculture 

wanted to make direct price support payments, relying on CCC’s 

broad general powers. The Department’s Solicitor said, 

effectively,“No, you can do only what the statute says.” The matter 

then went to the Attorney General, who also said, “no.” 41 Op. Att’y 

Gen. 183 (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 then sell them back to the same parties at 

a lower price. The products themselves would never move. GAO got 

into the act this time, holding that this was not a bona fide purchase 

and that the payments were, therefore, unauthorized. 

B-124910, August 15, 1955. Justice then proceeded to initiate 

recovery of the amounts improperly paid, and at least three courts 

of appeals agreed that the payments were illegal and could be 

recovered.176 See also B-211462-O.M., October 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, the Central Liquidity Facility decision summarized earlier. 

176Kraft Foods Co. v. Commodity Credit Corporation, 266 F.2d 254 (7th Cir. 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. 1958).
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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:

“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, 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). 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.”177

(2) Bonneville Power Administration

The Bonneville Power Administration is one of the Department of 

Energy’s regional power marketing administrations. Created in 1937, 

it markets and transmits electric power in the Pacific Northwest. 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). Nevertheless, its statutory powers are 

comparable to those of a wholly owned government corporation. It 

is financed through a revolving fund, 16 U.S.C. § 838i, and has the 

following general powers:

“Subject only to the provisions of this chapter, the Administrator is authorized to 

enter into such contracts, agreements, and arrangements, including the 

177The statute was subsequently amended to give Treasury a permanent indefinite 

appropriation to purchase the necessary currencies. See B-129650, March 27, 1979.
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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 

chapter.” 16 U.S.C. §§ 832a(f), 832h(b) (respectively).

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 is, in addition 

to 31 U.S.C. § 1301(a), 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-46169, 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, 

September 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 
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proposed an agreement with the ill-fated 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 was discontinued prior to 

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 16, 1962.

In 46 Comp. Gen. 349 (1966), Bonneville was acquiring 500-kv. 

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.” 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, October 21, 1970. (Actually, this was a pretty 

easy decision since 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 
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then proposed to purchase power for its preference customers 

under what it called a “trust-agency” 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, 

September 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). 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. 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, August 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 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 
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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 highvoltage 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, 

assuming that allocation is done in a fair and nondiscriminatory 

manner (16 U.S.C. § 838d). Department of Water and Power of Los

Angeles v. Bonneville Power Administration, 759 F.2d 684 (9th Cir. 

1985); California Energy Resources Conservation and Development

Commission v. Bonneville Power Administration, 831 F.2d 1467 (9th 

Cir. 1987).

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, 

at 4.

(3) Amtrak

Amtrak was created by the Rail Passenger Service Act of 1970, 
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Pub. L. No. 91-518, title III, 84 Stat. 1327, 1330.178 Its purpose is to 

provide modern and efficient intercity and commuter rail passenger 

transportation. 49 U.S.C. § 24101(b). 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.” 49 U.S.C. 

§§ 24301(a)(2) and (3), as amended by Pub. L. No. 105-134, § 415(d), 

111 Stat. 2570, 2590 (1997).179 It was originally designated a mixedownership government corporation,180 but this was dropped in 

1997.181 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.182 GAO is authorized to conduct “performance audits 

of [Amtrak’s] activities and transactions.” 49 U.S.C. § 24315(e); 

B-175155, October 21, 1981 (internal memorandum).

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 Pub. L. No. 105-134, § 201, 111 Stat. 

at 2578, mandating that Amtrak operate without federal operating 

grants by fiscal year 2004. Nevertheless, federal financial assistance 

has always been necessary. This takes the form of appropriations 

made to the Secretary of Transportation for the purpose of making 

178Much of Amtrak’s legislation was transferred from Title 45 of the U.S. 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 the formal designation and use only “Amtrak.” See the 

codifier’s note to 49 U.S.C. § 24101.

179The version in effect immediately prior to the 1994 recodification said that 

Amtrak was not “an agency, instrumentality, authority, or entity, or establishment” 

of the United States. 45 U.S.C. § 541 (1988 ed.). 

180Pub. L. No. 91-518, § 804, 84 Stat. at 1340.

181Pub. L. No. 105-134, § 415(d)(2), 111 Stat. at 2590.

182Subsection 24301(a)(1) was amended by Pub. L. No. 105-134, § 401, 111 Stat. at 

2585, to clarify Amtrak’s relationship to the Interstate Commerce Act. See H.R. Rep. 

No. 105-251, at 36 (1997).
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“grants” to Amtrak. E.g., Department of Transportation and Related 

Agencies Appropriations Act, 1998, Pub. L. No. 105-66, 111 Stat. 

1425, 1435 (1998). 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(2), 

September 26, 1978 (requirement in 31 U.S.C. § 1105(a)(5) for fiveyear projection not applicable to Amtrak’s funding requests to 

Secretary). As with the 1998 appropriation, the funds are made 

available until expended, and may include separate amounts for 

operating losses and capital improvements. Amtrak receives half of 

the appropriation on October 1, and the balance at not less than 

90-day intervals unless it can justify more frequent payment. 

49 U.S.C. § 24104(d).

The statutory payout schedule “has virtually assured” that Amtrak 

will receive more money than it immediately needs for current 

expenses. B-175155(2), April 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), April 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 sincerepealed 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. These 

cases are intended to illustrate the operational and spending 

freedom of a “non-instrumentality” corporation, in principle. The 

Supreme Court has said that Amtrak’s non-instrumentality 

disclaimer “is assuredly dispositive of Amtrak’s status . . . for 

purposes of matters that are within Congress’ control.” Lebron v.

National R.R. Pass’r Corp., 513 U.S. 374, 392 (1995). Thus, the 
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answer to the typical question of whether this or that law applicable 

to government entities applies to Amtrak is, “no.” E.g., 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-206638, April 1, 1982 (internal memorandum) (Federal Acquisition 

Regulations, mandatory provisions of Federal Supply Schedule).

Of course, since we are talking about “matters within Congress’ 

control,” Congress does have a certain freedom in defining the 

applicability of laws. For example, we noted earlier that Amtrak is 

not subject to the Antideficiency Act. B-175155, July 26, 1976. Yet, 

Amtrak’s 1998 appropriation includes 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, 111 Stat. at 1435. The point is 

that making the Antideficiency Act applicable, even to this limited 

extent, 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.183 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, non-contributory 

retirement benefits, and free transportation for employees and their 

dependents on Amtrak trains. Noting that the ceiling was the same 

as that for cabinet 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, January 7, 1974. The limitation was changed in 

1988184 to prohibit rates of compensation greater than “the general 

level of pay for officers of rail carriers with comparable 

183Pub. L. No. 92-316, § 1(a), 86 Stat. 227 (1972).

184Pub. L. No. 100-342, § 18(c), 102 Stat. 624, 636 (1988).
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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 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, 

January 7, 1974. Amtrak developed an agreement under which the 

officer agreed to perform whatever services might be necessary, for 

a period of six 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, October 3, 1974; B-175155, September 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),185 and 

it can make loans, provided they serve a corporate purpose 

(B-207880-O.M., November 5, 1982), because both actions are 

authorized under the District of Columbia law.

7. Application of Other Laws A government corporation’s autonomy, while conferring 

considerable spending discretion, does not remove it from the 

coverage of all laws of the United States. We set forth here several 

laws governing the operations of federal agencies. As one would 

185Sometimes, dealing with GAO case law can be a complicated, confusing, and even 

daunting task. For one thing, GAO has tended to re-use “B” file designations for 

similar subjects—counting on “sub-numbers” 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 12.)
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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 “non-instrumentality” corporations. A 

summary chart, including some laws not covered here, may be 

found in Government Corporations: Profiles of Existing

Government Corporations, GAO/GGD-96-14, App. III (December 

1995).

a. Civil Service Laws We use the term “civil service laws” to mean the body of laws in 

Title 5 of the U.S. 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.186 Title 5 includes a few 

general definitions and a great many specific ones. Section 105 of

5 U.S.C. defines “Executive agency” to include government 

corporations. “Government corporation” is defined as “a 

corporation owned or controlled by the United States.” 5 U.S.C. 

§ 103(1). “Government controlled corporation” does not include a 

corporation owned by the United States. 5 U.S.C. § 103(2). In 

addition, 5 U.S.C. § 2105(a) defines “employee” as someone 

appointed in 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 “government 

controlled corporation” in these definitions to mean a mixedownership 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), 

186GAO 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, November 5, 1943, at 3, quoted in

23 Comp. Gen. 815, 816 (1944). Dr. Moe 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. Moe 1995, supra note 41, at 56.
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8901(1)(A) (provisions for group life and group health insurance 

apply to employee as defined in § 2105).

A provision applicable to an Executive agency but not a government 

controlled corporation applies to wholly owned, but not mixedownership, government corporations. A good example is what is 

perhaps the heart of the civil service system, the provisions 

governing classification (5 U.S.C. ch. 51) and pay (ch. 53, subch. III). 

The classification chapter applies to Executive agencies but not 

government controlled corporations. 5 U.S.C. § 5102(a)(1)(A), (i). 

Subchapter III of chapter 53 adopts 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

Corporation, 64 M.S.P.R. 458 (1994) (FDIC, a mixed-ownership 

corporation, not subject to classification laws).

The following inventory does not purport to be complete:

Whistleblower Protection Act—excludes 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).

Experts and consultants—applies to wholly owned, but not mixedownership, government corporations. 5 U.S.C. § 3109(a).

Senior Executive Service—does not apply to 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. 5 U.S.C. § 4101(1)(C).

Performance appraisal system—not applicable to government 

corporations. 5 U.S.C. § 4301(1)(i). E.g., B-233528, December 14, 
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1988 (Overseas Private Investment Corporation not required to 

submit its performance appraisal system for review by OPM.)

Government Employees Incentive Awards Act—applies to both 

wholly owned and mixed-ownership corporations. 5 U.S.C. 

§§ 4501(1)(A), (2)(A).

Dual compensation laws—apply to government corporations. 

5 U.S.C. § 5531(2). E.g., B-238303, B-236399, May 29, 1991 (retired 

military officer employed by FDIC).187 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 

services contract rather than employment in order to avoid the 

statutory restrictions is improper. Of course, GAO can do no more 

than report the matter to Congress. B-222334, June 2, 1986.188

Severance pay—applies to government corporations. 5 U.S.C. 

§ 5595(a)(1)(A). E.g., B-114839-O.M., August 11, 1978 (former 

Panama Canal Company). The statute expressly excludes 

employees, other than members of the Senior Executive Service, 

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.

187Under 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, Act of 

February 2, 1932, ch. 12, title II, § 3, 47 Stat. 15, 28; 23 Comp. Gen. 815, 817 (1944). 

188As noted earlier, a government corporation empowered to determine the 

character and necessity of its expenditures, as was the corporation 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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Back Pay Act—applies to government corporations. 5 U.S.C. 

§ 5596(a)(1). E.g., Payne v. Panama Canal Company, 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 

of 5 U.S.C. ch. 57, subch. I and II, apply to wholly owned, but not 

mixed-ownership, corporations. 5 U.S.C. §§ 5701(1)(A), (i) , 5721(1). 

E.g., B-214811, July 25, 1984 (internal memorandum) (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. 5 U.S.C. § 5901(a).

Annual and sick leave—applies to government corporations, both 

wholly owned and mixed-ownership. 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 non-corporate agencies. Pinto v. Vessel “Santa Isabel,” 

492 F. Supp. 689 (D.C.Z. 1980) (former Panama Canal Company); 

Posey v. TVA, 93 F.2d 726 (5th Cir. 1937) (TVA).

Retirement—Both the Civil Service Retirement System and the 

Federal Employees Retirement System apply to employees as 

defined in 5 U.S.C. § 2105, and therefore apply to government 

corporations. 5 U.S.C. §§ 8331(1)(A), 8401(11)(A)(CSRS, FERS, 

respectively).

A law related in subject matter to Title 5 is the Fair Labor Standards 

Act, 29 U.S.C. §§ 201-219, which provides, among other things, for 

overtime compensation for time worked in excess of 40 hours in a 

week. The FLSA adopts the definition of Executive agency of 
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5 U.S.C. § 105, and therefore includes government corporations. 

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 (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) (PBGC). 

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) (St. Lawrence Seaway 

Development Corporation). The comparable provision for the InterAmerican Foundation limits the total number of employees. 

22 U.S.C. § 290f(e)(5). An example of seemingly broader language is 

7 U.S.C. § 5903(n)(3), as amended by the Federal Agriculture 

Improvement and Reform Act of 1996, Pub. L. No. 104-127, § 723, 

110 Stat. 888, 1115, providing that officers or employees of the 

Alternative Agricultural Research and Commercialization 

Corporation “shall be subject to all laws of the United States relating 

to governmental employment.”

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); 7 U.S.C. § 943(d) (Rural Telephone Bank). The 

“without regard” authority is not an “all or nothing” proposition. The 

corporation may, in its discretion, 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 
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example, the dual compensation laws (19 Comp. Gen. 926 (1940); 

B-9113, April 30, 1940),189 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., TVA 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).

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 deductions for union dues (B-105819, 

December 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, 

January 3, 1949 (similar holding with respect to life and health 

insurance premiums prior to the enactment of the general legislation 

now in Title 5). 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 

189Earlier 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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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, November 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); 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 a 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, December 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 Corporation, 49 F.3d 

1269, 1270 (7th Cir. 1995), and 902 F. Supp. 149 (N.D. Ill. 1995) 

(Amtrak). Accordingly, Title 5 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: 

They apply, for the most part, to wholly owned government 

corporations, but not to mixed-ownership corporations and 

certainly not to “non-instrumentalities.”
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(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, this statute was revised as part of the 

Administrative Expenses Act of 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 mixed-ownership 

corporations. E.g., B-138105-O.M., March 4, 1959.

GAO has not attempted to define “administrative expenses” for this 

law any more than it has for other laws. 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, October 22, 1954. Nor is the construction and 

equipping of a substation by the former Panama Canal Company. 

B-122655, April 7, 1955. Nor is the purchase of a generating set for 

supplying electric power. B-114990, August 19, 1953.

(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), codified in 41 U.S.C. ch. 4, subch. 4. Subsections 3(a) 

and (b) of the original Property Act, 63 Stat. 378, 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 unless exempt under 

40 U.S.C. § 474 or comparable statutory authority.190

190The Property Act addresses property management as well as procurement. The 

property management portions are located in Title 40, along with the definitions, 

now found in 40 U.S.C. §§ 472(a) and (b). Placing the operative provisions in more 

than one title of the U.S. Code does not change the application of the statutory 

definitions. 
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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.

(3) Office of Federal Procurement Policy Act

The Office of Federal Procurement Policy Act, Pub. L. No. 93-400, 

88 Stat. 796 (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 

government-wide 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 
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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., March 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, September 9, 1986 (Legal 

Services Corporation); Analysis of Amtrak’s Acquisition of Office

Copying Equipment, GAO/CED-82-111, July 12, 1982.

(5) Competition in Contracting Act

The Competition in Contracting Act (CICA), title VII of the massive 

Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494, 1175, 

made a number of revisions in procurement-related provisions. As 

relevant here, section 2741, 98 Stat. at 1199, gave a statutory basis to 

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 (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 Property Act, 

40 U.S.C. § 472 (see above). In other words, it expressly includes 

wholly owned government corporations.

Since CICA hinges on the definition of “federal agency,” account 

settlement authority or lack thereof 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 mixedownership corporations. E.g., B-252085, January 26, 1993.

Also not dispositive is the applicability or non-applicability of the 

Property Act and the FAR. The Bonneville Power Administration, for 
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example, is not subject to the Property Act’s procurement 

provisions or to the FAR. See 16 U.S.C. § 832a(f) and 40 U.S.C. 

§ 474(d)(20). 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. There are, however, several other 

procurement-related statutes. Some address their applicability. 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, CICA and 

the Property Act do. One example is the Brooks Architect-Engineers 

Act, 40 U.S.C. §§ 541-544, which establishes procedures for the 

acquisition of architectural and engineering services. It uses, but 

does not define, the term “agency.” 40 U.S.C. § 541(2). In an internal 

memorandum, B-215818-O.M., August 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 
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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 20th 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), 

as amended, is found in 5 U.S.C. Appendix 3. 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. 3 § 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. 3 § 11(2). The listing includes a few government 

corporations, such as the Community Development Financial 

Institutions Fund, the Federal Deposit Insurance Corporation, and 

the Corporation for National and Community Service. Id. Each 

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. 3 §§ 2, 3(a).

“Designated federal entity” is similarly defined by listing the entities 

covered, and includes several more government corporations and 

several “non-instrumentalities”—Amtrak,191 Corporation for Public 

Broadcasting, Legal Services Corporation, Pension Benefit Guaranty 

Corporation, Tennessee Valley Authority. 5 U.S.C. App. 3 § 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, 

191Amtrak 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 

(1997).
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whose head is appointed by the head of the entity. 5 U.S.C. App. 3 

§ 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. 3 § 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. 3 § 8G(h)(2). The corporations selected for “designated federal 

entity” status are those receiving the largest amounts of federal 

funds. See H.R. Rep. No. 100-771 at 2 (1988), reprinted in 1988 

U.S.C.C.A.N. 3154, 3155.

(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, establishes a framework for 

evaluating internal controls. Section 2, 31 U.S.C. §§ 3512(c) and (d), 

requires each executive agency to develop, in accordance with 

standards prescribed by the Comptroller General, a system of 

internal accounting and administrative controls, and to report each 

year, under Office of Management and Budget guidelines, 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].” Therefore, section 2 of FMFIA by its own force has no 

application to government corporations.

However, 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 by its own terms, the 

Control Act contains a parallel requirement.
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(3) Chief Financial Officers Act

 The Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 

104 Stat. 2838, as amended, requires the establishment of Chief 

Financial Officers in specified agencies, but includes no government 

corporations. 31 U.S.C. § 901. The act did, however, revise the audit 

and management reporting provisions of the Government 

Corporation Control Act, as summarized earlier in our coverage of 

the Control Act. Section 301 of the act, 31 U.S.C. § 3512(a), requires 

OMB to include information about government corporations in the 

financial management status reports and governmentwide five-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, 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 OMB to update periodically, a “strategic plan,” which 

must include a mission statement and the agency’s goals and 

objectives for at least a five-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(f)(1). Therefore, GPRA applies to 

corporations owned or controlled by the United States.

(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. 

at 3410,3416 (1994), 31 U.S.C. § 331(e). GAO is required to audit 

these consolidated statements. Id. at 3417. Since the statements are 

to cover the entire executive branch, they include those government 

corporations that are in the executive branch. See Financial Audit: 

1997 Consolidated Financial Statements of the United States
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Government, GAO/AIMD-98-127, Appendix (agencies included and 

excluded) (March 1998).

(6) Federal Financial Management Improvement Act of 1996

This law concerns agency financial management systems. 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. 31 U.S.C. § 3512 note 

(Sec. 806(i)).

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. §§ 472(a) and (b), 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. § 474(c) exempts government corporations from the 

provisions relating to GAO approval of property accounting systems 

(40 U.S.C. § 486(b)) and GAO audit of property accounts (40 U.S.C. 

§ 487(c)). The Tennessee Valley Authority is partially exempt by 

virtue of 40 U.S.C. § 474(d)(12). 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.

Section 481 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. § 472(a). 

The law further directs GSA to provide these services upon request 

to mixed-ownership corporations as well. 40 U.S.C. § 481(b)(1). This 

would include such services as the use of federal supply schedules.

The disposition of excess property is covered in 40 U.S.C. § 483. 

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. § 483(a)(1). The purpose of this 

provision is to—
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“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, 

December 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, September 28, 1956.

Section 484 of 40 U.S.C. addresses surplus property and is also 

applicable to wholly owned corporations. Under subsection (c), the 

disposing agency may “execute such documents for the transfer of 

title or other interest in property” as deemed appropriate. 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 identical 

language in 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. § 485, which generally directs their deposit as 

miscellaneous receipts. 40 U.S.C. § 485(a). However, an exception 

specified in 40 U.S.C. § 485(c) 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 

therefrom 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 . . . .”

The quoted provision also applies to foreign excess property 

disposed of for United States currency. 40 U.S.C. § 513. These 

provisions authorize the crediting of proceeds to the revolving fund 

of a government corporation, even where the property was 

originally acquired with appropriated funds. B-99032-O.M., February 

9, 1953 (disposal of dredge by former Panama Canal Company).

GSA’s leasing authority is found in 40 U.S.C. § 490. It, too, applies to 

wholly owned corporations by virtue of 40 U.S.C. §§ 472(a) and 129. 

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. § 490(b). An odd situation 

occurred in 38 Comp. Gen. 565 (1959). The Federal National 
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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 governmentsponsored 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 

mixed-ownership 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. It applies to 

wholly owned corporations and to several specified mixedownership corporations, one of which is the Federal Deposit 

Insurance Corporation. 40 U.S.C. §§ 612(1), (3), (4). 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., 

September 27, 1960.

The Uniform Relocation Assistance and Real Property Acquisition 

Policies Act of 1970, 42 U.S.C. ch. 61, 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 includes any . . . Government 

corporation [or] Government controlled corporation.” 5 U.S.C. 

§ 552(f)(1). The Privacy Act provides that “the term ‘agency’ means 

agency as defined in section 552(e) 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.
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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., Jones v. NRC, 654 F. 

Supp. 130, 131 (D.D.C. 1987) (FOIA applies to TVA); Stephens v.

TVA, 754 F. Supp. 579 (E.D. Tenn. 1990) (Privacy Act suit against TVA 

with no suggestion of any concern over applicability). 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. 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 government-sponsored 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 government 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.

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 181.192

Amtrak is subject to FOIA by virtue of 49 U.S.C. § 24301(e). 

However, it is not a government-controlled corporation for purposes 

of the Privacy Act. Ehm v. National Railroad Passenger Corporation, 

732 F.2d 1250 (5th Cir. 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). See also

192Legislation 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 Liberty Mortgage Banking,

Ltd. v. Federal Home Loan Mortgage Corp., 822 F. Supp. 956, 958-960 and n.7 

(E.D.N.Y. 1993).
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63 Comp. Gen. 98 (1983) (declining to consider the matter further in 

view of the then-pending Ehm litigation). 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 1254-55. 

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 government 

corporations and government controlled 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.” 57 Comp. Gen. at 775; 63 Comp. Gen. at 99. 

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 or quasi-government corporations under these laws. 

1 Op. Off. Legal Counsel 126, 131-132 (1977).

A final information-related statute we may mention is the 

Paperwork Reduction Act of 1980 (which replaced the Federal 

Reports Act of 1942), 44 U.S.C. ch. 35. It gives OMB certain oversight 

and regulatory responsibilities with respect to the collection of 

information from the public. Its definition of “agency” is essentially 

the same as that of FOIA and the Privacy Act in that it expressly 

includes government corporations and government controlled 

corporations. 44 U.S.C. § 3502(1).

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 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.
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The earliest decision appears to be A-49652, June 28, 1933, in which 

GAO advised that the Home Owners’ Loan Corporation 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 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, October 4, 

1938. The two corporations subsequently adopted resolutions to 

serve as their determination of non-applicability, and GAO 

concurred. A-98289, January 18, 1939 (HOLC); A-98289/A-60495, 

January 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, 

January 26, 1983 (TVA); B-114829, July 8, 1975 (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. 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 above under the “Fiscal 

Autonomy” heading, a “character and necessity” provision is 

sufficient to permit its avoidance, without the need for the 

additional “without regard” clause.

As further evidence, again 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, March 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 
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event of repeal. See 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.

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:

“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 (1932) 

(Holmes, J.).

Congress has implemented this power through several provisions of 

the Criminal Code (18 U.S.C.). 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 United States or agency 

thereof through false claim); 287 (presenting false claim to United 

States or agency thereof); and 371 (conspiracy to defraud 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 (2d Cir. 1950), 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 
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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 non-stock government 

corporations. The Revision Note to 18 U.S.C. § 6 makes clear that 

this phrase “is intended to include those government corporations in 

which stock is not actually issued.” A case applying this concept is 

Acron Investments, Inc. v. FSLIC, 363 F.2d 236, 239-240 (9th Cir. 

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, described in detail in Chapter 12, 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 corporations 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 section 722(a) of Pub. L. No. 104-127, 

110 Stat. 888, 1114, 7 U.S.C. § 5902(f)(15), which provides that the 

Alternative Agricultural Research and Commercialization 

Corporation:

“may make final and conclusive settlement and adjustment of any claim by or 

against the Corporation or a fiscal officer of the Corporation.”

While often cited in conjunction with a sue-and-be-sued clause or a 

“character and necessity” clause, this provision is sufficient to 
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permit the corporation to administratively settle its own claims. 

Government corporations with this type of authority include the 

Tennessee Valley Authority,193 the Commodity Credit Corporation,194

and the corporate functions of the Federal Housing 

Administration.195 The Bonneville Power Administration, consistent 

with its other corporate-like powers, has it too.196

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, March 27, 1974; B-109766, January 20, 1959 (both dealing 

with the former Panama Canal Company).

(2) Federal Tort Claims Act

Prior to the Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 1346(b), 

2671-2680, whether government corporations were subject to 

common-law tort suits was somewhat unclear. 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.

193E.g., 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.

194B-200654, September 9, 1981; B-142771/B-143782, November 23, 1960; B-138489, 

March 25, 1959.

19553 Comp. Gen. 337 (1973); 27 Comp. Gen. 429, 432 (1948); B-156202, March 9, 

1965.

196B-129395, January 22, 1957; B-132855-O.M., October 1, 1957.
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At a minimum, the definition should pick up wholly owned 

government corporations. The following have been found subject to 

the Act:

• 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. FSLIC

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

Association v. FSLIC, 643 F. Supp. 410 (C.D. Cal. 1986).

• St. Lawrence Seaway Development Corporation. Handley v. Tecon

Corp., 172 F. Supp. 565 (N.D.N.Y. 1959).

• Federal Housing Administration. Edelman v. FHA, 382 F.2d 594 (2d 

Cir. 1967).

• Federal Prison Industries. 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 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, 

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 the FDIC is a “federal agency” for 
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FTCA purposes. E.g., Davis v. FDIC, 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. FDIC v. Hartford Insurance Co., 

877 F.2d 590 (7th Cir. 1989); FDIC 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 cannot be used to get in 

through the back door. FDIC v. Citizens Bank & Trust Co., 592 F.2d 

364 (7th Cir. 1979) (exemption for execution of statute or 

regulation); Safeway Portland Employees’ Federal Credit Union v.

FDIC, 506 F.2d 1213 (9th Cir. 1974) (misrepresentation and deceit); 

Freeling v. FDIC, 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. DiStefano, 839 F. Supp. at 123. Another 

important consequence of applicability is the requirement to 

attempt administrative resolution before going to court. E.g., FDIC 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 governmentsponsored enterprise. 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). However, it is not inconceivable that a court 

could construe the language of 28 U.S.C. § 2671 to encompass some 

GSEs.

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.197 At least in theory, it 

seems possible for a government corporation or GSE to be subject 

to the FTCA with respect to its primary function, but not subject 

while performing some ancillary or incidental function.

197The linguistic change resulting from the 1948 recodification of Title 28 

presumably works no substantive change. 
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As to the remaining types of government-created corporations, 

applicability of the FTCA would seem quite remote. Earlier in our 

definitional discussion we noted cases refusing to apply the FTCA to 

the American Red Cross and to Production Credit Associations. 

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 TVA. E.g., Robinson v. United

States, 422 F. Supp. 121 (M.D. Tenn. 1976); Latch v. TVA, 312 F. Supp. 

1069 (N.D. Miss. 1970). However, the 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 (W.D. Ky. 1971); Smith

v. TVA, 436 F. Supp. 151 (E.D. Tenn. 1977) (following Brewer). Well, 

maybe not exactly like a private individual because the 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. TVA, 476 F.2d 943 (5th Cir. 1973).

(3) Contract Disputes Act

The Contract Disputes Act, 41 U.S.C. §§ 601-13, applies to each 

“executive agency,” which includes “a wholly owned Government 

corporation as defined by section 9101(3) of Title 31.” 41 U.S.C. 

§ 601(2). See APA, Inc. v. FSLIC., 562 F. Supp. 884 (W.D. La. 1983) 
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(Contract Disputes Act applied to former FSLIC because it was 

listed as a wholly owned government corporation).

As is often the case, the Tennessee Valley Authority 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 (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 majority stockholder. See Act of 

September 7, 1916, ch. 451, § 11, 39 Stat. 728, 731. 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 
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happened,198 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 593-594. (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 Ins.

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. TVA, 709 F.2d 440 (6th Cir. 1983)), and the 

Export-Import Bank (Balfour Maclaine Int’l, 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) (CCC).

It is also possible for a government corporation or GSE 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 Peoria Consolidated

Manufacturers, Inc. v. United States, 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 crop would be covered. Speaking 

through Justice Frankfurter, the Court explained:

198As 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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“[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 pre-privatization version of Freddie 

Mac dealt with in Rocap v. Indiek, cited earlier 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) 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, February 27, 1987. Subsection (b) of 31 U.S.C. § 3901 

states that the Act applies to the Tennessee Valley Authority, 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. 31 U.S.C. § 3902(h). Under 31 U.S.C. § 3907, a 

claim for an interest penalty may be brought under the Contract 

Disputes Act but, since that act has its own interest provision, 

Prompt Payment Act interest is limited to one 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 one-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 
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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), for one example.

(7) False Claims Act

The False Claims Act, 31 U.S.C. §§ 3729-3731, 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.”

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.” 356 U.S. at 592.

Another line of cases says essentially the same thing with respect to 

the Federal Housing Administration. McNinch, 356 U.S. at 598; 

United States v. Veneziale, 268 F.2d 504 (3d Cir. 1959); United States

v. 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. 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. 1954)). Whether there might be any basis for 

distinguishing these corporations from any other wholly owned 

corporations does not appear to have been addressed.
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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), motion for 

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.”

(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 (2d Cir. 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” 

discussed in Chapter 12. However, the “unitary” theory, while still 

true for the most part, is not an absolute. See, e.g., United States v.

ICC, 337 U.S. 426 (1949); Dean v. Herrington, 668 F. Supp. 646 (E.D. 

Tenn. 1987) (suit by TVA against DOE).

More recent 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, December 3, 1993, holding that the Federal Highway 

Administration could pay the Tennessee Valley Authority 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—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 In Chapter 13 of this publication we demonstrate, that the United 

States has inherent authority to recover amounts owed to it and 

does not need any special statutory authority to do so. 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 20th century, this has less significance than it does in the 

payment context.

Much of the governmentwide debt collection legislation applies 

expressly to government corporations, which, in the absence of 

authority to the contrary, we would assume should be interpreted to 

mean the corporations listed in 31 U.S.C. § 9101. The first 

governmentwide statute, the Federal Claims Collection Act of 1966, 

defined “agency” as including government corporations. Pub. L. 

No. 89-508, § 2(a), 80 Stat. 308. 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 
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(Pub. L. No. 97-365, 96 Stat. 1749) 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, 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 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. 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, August 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-and-be-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, 

April 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, August 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
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States Shipping Board Emergency Fleet Corp., 258 U.S. 549 (1922);199

United States v. Wood, 290 F. 109 (2d Cir. 1923), aff’d mem. 263 U.S. 

680; West Virginia Rail Co. v. Jewett Bigelow & Brooks Co., 

26 F.2d 503 (E.D. Ky. 1928).

As we have seen (under the Assignment of Claims Act heading 

above), 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) (RFC v. Brady, 

150 S.W.2d 357 (Tex. Civ. App. 1941)). Two cases giving priority to 

RFC debts are In re Peoria Consol. Mfrs., Inc., 286 F.2d 642 (7th Cir. 

1961), and In re Tennessee Cent. Ry., 463 F.2d 73 (6th Cir. 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.” 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 (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, 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); In re

Byquist, 168 F. Supp. 483 (D. Kan. 1958). 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. 15 U.S.C. § 714b(e). See

Engleman v. CCC, 107 F. Supp. 930 (S.D. Cal. 1952) (recognizing the 

199The 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 (2d Cir. 1921).
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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 

“unitary government” concept and treated debts to government 

corporations as debts to the United States. Applying the commonlaw offset inherent under the general settlement authority of 

31 U.S.C. § 3702(a), GAO took the position that a refund of certain 

taxes was subject to offset to collect a debt owed to the 

Reconstruction Finance Corporation. B-35182, August 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, November 30, 1945. While 

there now exists a comprehensive statutory provision for 

administrative offset, 31 U.S.C. § 3716, which applies to government 

corporations, the common-law principles remain relevant in cases in 

which section 3716 does not apply. Just like any non-corporate 

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, 11 U.S.C. § 553, preserves any 

common-law offset arising before commencement of the 

bankruptcy case. 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 (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 governmental units when they act in their private 
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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, holding that 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., 

FDIC v. Meyer, 510 U.S. 471, 475 (1994). Of course, the United States 

may waive that immunity by consenting to be sued. 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) (TVA); 7 U.S.C. § 942 (Rural 

Telephone Bank). A variation includes one or two additional 

elements, such as 29 U.S.C. § 1302(b)(1), which authorizes the 
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Pension Benefit Guaranty Corporation to “sue and be sued, 

complain and defend, in its corporate name and through its own 

counsel, in any court, State or Federal.” Another version adds a 

whole paragraph of instructions on such things as jurisdiction, 

venue, and garnishment. E.g., 15 U.S.C. § 714b(c) (CCC).

The litigative status of a government corporation without a sue-andbe-sued clause is open to some debate. In Keifer & Keifer v. RFC, 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 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., RFC v.

Langham, 208 F.2d 556 (6th Cir. 1953); United States v Edgerton &

Sons, 178 F.2d 763 (2d 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 RFC 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, and 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 as Congress seems 

to include the clause almost automatically.

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. As the Supreme Court put it in FHA

v. Burr, 309 U.S. 242, 244 (1940):

“[T]here can be no doubt that Congress has full power to endow [a 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 
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statute specifically waives it.” 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 doing this is the sue-and-be-sued clause. The Supreme 

Court emphasized in Meyer 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 fashion.” 309 U.S. at 245, quoting Burr, 510 U.S. 

at 480. 

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.” Id. 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 agency 

itself. Thus, a sue-and-be-sued clause does not furnish the legal basis 

for the suit. See also Young v. FDIC, 763 F. Supp. 485 (D. Colo. 1991); 

Atchley v. TVA 69 F. Supp. 952 (N.D. Ala. 1947); Grant v. TVA, 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-andbe-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.” 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 FHA, 
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but stated that this did not mean “that any funds or property of the 

United States can be held responsible for this judgment.” 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. 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.” Id. 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.

Courts have differed in interpreting the Burr holding. Some courts 

have held that, in order to establish the government’s waiver of 

sovereign 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 HUD, 710 F.2d 1130, 1138 

(1983); S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 

36 (1979); Thomas v. Pierce, 662 F. Supp. 519, 526 (1987); Marcus

Garvey Square, Inc. v. Winston Burnett Constr. Co., 595 F.2d 1126 

(1979). See also, Oklahoma Mrtg. Co. v. GNMA, 831 F. Supp. 821 

(1993) (GNMA 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).

Some courts have rejected this approach reasoning that those cases 

misinterpret Burr. Auction Co. v. FDIC, 132 F.3d 746 (1997) (Auction

I). In deciding jurisdictional issues involving the FDIC, the Auction I

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. 
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The Auction I 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 752-753.

Other courts have held that when sovereign immunity is waived by a 

sue-and-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 (1990); Jackson Square Assoc.

v. HUD, 797 F. Supp. 242, 245-246 (1992). Upon consideration of the 

Government’s petition for rehearing in the C.H. Sanders case, the 

Second Circuit addressed the concern that 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 

(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 the FHA’s sue-and-be-sued 

clause. National State Bank of Newark v. United States, 357 F.2d 704, 

711 (1966).

Finally, the court in Far West Federal Bank v. OTS, 930 F.2d 883, 890 

(1991), recognized the split, but avoided choosing one or the other 

because it 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. 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. 

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 889-890. Thus, 

the court concluded that the “Treasury backup” provision did not 
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bar recovery under the sue-and-be-sued clause or impose exclusive 

Tucker Act jurisdiction.

Notwithstanding the differences discussed above, generally, 

judgments against a government corporation are paid by the 

government corporation rather than from the “judgment fund” 

discussed in Chapter 14.200 As explained in that chapter, judgments 

against government corporations are “otherwise provided for”. 

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., 13 Op. Off. Legal Counsel 362 (1989); 62 Comp. Gen. 12 (1982).

(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 Court of Federal Claims has exclusive 

jurisdiction for suits of more than $10,000 and concurrent 

jurisdiction with federal district courts for 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.

FDIC, 141 F.3d 1198, 1199 (1998) (Auction II). Several mixedownership government corporations, such as the 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 I, 132 F.3d at 750; Auction II, 141 F.3d 

200Under section 1304 of title 31, a permanent appropriation, commonly known 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).
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at 1199. 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 Mrtg. Co. v. GNMA, 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. OPIC, 640 F. Supp. 420, 424 (1986). The Optiperu

court reviewed the legislative history of OPIC and found several 

instances where Congress set out its governmental policy objectives 

while carrying out transactions that would otherwise normally be 

characterized as private, such as issuing and guaranteeing loans and 

insurance. The court noted that OPIC is “an agency of the United 

States under the policy guidance of the Secretary of State.” 

22 U.S.C. § 2191. 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. 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 425-426. Rather, the United States would be 

jointly or severally liable for any money damages obtained against 

OPIC. Id. 

The various waivers of sovereign immunity and jurisdiction al 

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 court for Tucker Act 
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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 Burr, 309 U.S. 242, for example, 

the Supreme Court held that the Federal Housing Administration 

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. 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.” Burr, 309 U.S.at 246. The Court 

pointed out two examples of government agencies with sue-and-besued 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 309 U.S. 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. RFC 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-besued. 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.

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 

(1986). Where a government corporation does not act like a private 
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corporation, but acts as an agent for the Government and there is no 

statute 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. RFC, 207 F.2d 

361, 370 (1953). 

However, interest can and has been recovered against government 

corporations under certain circumstances. As discussed in 

Chapter 14, 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 post-judgment interest. 

Standard Oil Co. of New Jersey v. United States, 267 U.S. 76 (1925); 

R&R Farm Enterprises v. FCIP, 788 F.2d 1148 (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 have authorized by law or 

regulation. R&R Farm Enterprises 788 F.2d at 1153. See also, 

McGhee v. Panama Canal Commission, 872 F.2d 1213 (1989); Pender

Peanut Corp.v United States, 21 Cl. Ct. 95 (1990). Those courts held 

that the waiver of sovereign immunity does not create a new liability 

upon the government for the payment of interest.

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 be-sued clause. For example, where the FDIC is acting 

as a regulatory agency protecting the banking system, it is not 

subject to prejudgment interest awards. Far West Federal Bank v.

OTS, 119 F.3d 1358, 1366 (1994); Spawn v. Western BankWestheimer, 989 F.2d 830, 833-38 (1993); Gilbert v. FDIC, 950 F. Supp. 

1194 (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 
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awards. Library of Congress v. Shaw, 478 U.S. at 323. In Loeffler, the 

Supreme Court identified two factors which waived any existing 

immunity of the Postal Service.201 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-be-sued 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 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 (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. 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-andbe-sued clause that did not directly or expressly authorize an award 

of fees was not sufficient to override that bar. RTC v. Miramon, 

935 F. Supp. 838, 842 (1996).

The EAJA addressed judicial fee awards by extensively revising 

28 U.S.C. § 2412.202 Id. 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 

201The United States 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.

202These provisions are discussed in detail in Chapter 14.
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corporations, although without addressing the issue of the EAJA’s 

application to them. See, e,g., RTC v. Eason, 17 F.3d 1126 (1994); 

RTC v. Miramon, 935 F. Supp. 838 (1996); Olenhouse v. CCC, 922 F. 

Supp. 489 (1996).

As with other federal agencies, the EAJA operates as a limited 

waiver of a government corporation’s sovereign immunity by 

permitting courts to award reasonably attorneys’ 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 RTC sued officers of a failed savings 

and loan association alleging negligence and breach of fiduciary 

duty. The officers successfully defended against the action and 

attempted to recover attorney’s fees from the RTC relying on a 

regulation that authorized indemnification for expenses incurred in 

defending charges arising out of their official conduct. However, 

that regulation only applied during the “life” of the savings and loan. 

By the time the RTC brought the action, the entity had failed and the 

RTC was not deemed to be acting in the capacity of the savings and 

loan. Thus, the regulation did not apply and the officers could not 

recover attorney’s fees.

The EAJA is specific in the items that may be awarded in a judgment 

against the United States for costs, fees and expenses, and does not 

authorize general compensatory damages for embarrassment or loss 

of reputation. Miramon, 935 F. Supp. at 844. Neither does a “naked” 

sue-and-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.

(5) Sovereign Immunity from State and Local Taxes

The oft-quoted principle that the federal government and its 
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activities203 are immune from taxation by state and local 

governments was recognized by the Supreme Court in a case 

involving a government corporation. M’Culloch v. Maryland, 17 U.S. 

(4 Wheat.) 316 (1819).204 The application of this principle to 

government corporations has varied since M’Culloch, 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.

M’Culloch 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. 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. 

17 U.S. 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,

“[b]ut 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.” 17 U.S. at 436-37.

Although the act creating the Bank did not expressly prohibit the 

states from taxing it, the Supreme Court in M’Culloch did not 

203A 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). 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, as least insofar as the activity 

being taxed is concerned. United States v. New Mexico, 455 U.S. 720, 735 (1982).

204The United States’ immunity from state and local taxation is discussed in 

Chapter 4.
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address that issue. Five years later, the Supreme Court took up this 

issue in Osborn v. 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’ power to create and protect the Bank. 

Id. at 865.

In later cases, the Supreme Court addressed Congress’ power to 

exempt government corporations from state taxation without 

relying upon the “implied” immunity of the M’Culloch and Osborn

cases. Smith v. Kansas City Title & Trust, 255 U.S. 180 (1920); 

Federal Land Bank v. Crosland, 261 U.S. 374 (1923). 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. 255 U.S. at 211-212; 261 U.S. 

at 377. A few months after it decided Crosland, the Supreme Court 

returned to the M’Culloch 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 

M’Culloch 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 M’Culloch, 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 addressed in 

either the Kansas City Title & Trust 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, 234-235 (1935) (noting 
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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 

validly authorized.” Id. at 32-33.205 The Supreme Court held that the 

creation of the corporation “was a constitutional exercise of 

congressional power and that the activities of the Corporation 

through which the national government lawfully acts must be 

regarded as governmental functionsand as entitled to whatever 

immunity attaches to those functions when performed by the 

government itself through its departments.” Id. at 32. See also

Federal Land Bank v. Bismark Lumber Co., 314 U.S. 95 (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.206 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 

Act of January 22, 1932, establishing the Reconstruction Finance 

Corporation (RFC), Congress waived the immunity of real property 

of the RFC and its subsidiary corporations. Board of County

Commissioners v. United States, 123 Ct. Cl. 304 (1952). However, the 

RFC’s authority to pay taxes was contingent upon the corporations 

holding legal title and having full control and dominion over the 

205The 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.

206Other examples include, but are not limited to, 7 U.S.C. § 1511 (Federal Crop 

Insurance Corporation); 22 U.S.C. § 2199(j) (OPIC); 33 U.S.C. § 986 (Saint Lawrence 

Seaway Development Corporation); 29 U.S.C. § 1302(g) (PBGC).
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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 from local taxes 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. Id. (property transferred to the Bureau of Mines). See also

36 Comp. Gen. 713 (1957) (property transferred to GSA); 

34 Comp. Gen. 319 (1955) (same).

(6) Litigation authority

The question here is whether a government corporation 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.” 28 U.S.C. § 519. The term “agency” is 

defined for purposes of Title 28 as including “any corporation in 

which the United States has a proprietary interest.” 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 Monograph, 

Compendium of Departments and Agencies With Authority Either by

Statute or Agreement to Represent Themselves in Civil Litigation, at 

9-10 (October 1982) (hereafter, Civil Litigation Compendium). The 

Department does not regard a naked sue-and-be-sued clause as 

enough. Id. at 11. An example of explicit authority is the Pension 
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Benefit Guaranty Corporation statute noted above. 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 non-programmatic 

litigation which is of government-wide 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 and the Tennessee Valley Authority, 

which possess only the simplified version of the sue-and-be-sued 

clause. Id. at 26-27. The courts have held Justice to that 

acquiescence and have upheld self-representation authority for the 

FDIC and the TVA. FDIC v. Irwin, 727 F. Supp. 1073 (N.D. Tex. 1989), 

aff’d on other grounds, 916 F.2d 1051 (5th Cir. 1990); Cooper v. TVA, 

723 F.2d 1560 (Fed. Cir. 1983); Algernon Blair Indus. Contractors,

Inc. v. TVA, 540 F. Supp. 551 (M.D. Ala. 1982).

Exemptions may be partial as well as complete. For example, the 

Export-Import 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) (fees of auctioneer and 

advertising costs); B-9850, May 23, 1940 (attorney fees, cost of 

printing appellate brief, other miscellaneous expenses) B-3163, 

April 24, 1939 (legal services necessary for foreclosing defaulted 

mortgage or regaining possession of property).
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9. Termination of 

Government Corporations

Unlike a private corporation, a government corporation cannot 

terminate its existence on its own authority.207 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 government corporations 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. 

Act of December 6, 1945, Sec. 304(b), 59 Stat. 597, 602.

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 provides a termination date in 

the enabling legislation or charter of some government 

corporations, such as the Export-Import Bank, that must be 

reauthorized if Congress wants them to continue in existence. In 

other situations, Congress imposes a deadline for a government 

corporation to fulfill its goals. For example, the Resolution Trust 

Corporation (RTC), created to manage and resolve failed savings 

institutions and recover funds by managing and selling the 

institutions’ assets, was directed to terminate no later than 

December 31, 1995. 12 U.S.C. § 1441a(m). RTC did terminate by that 

date, having substantially completed its mission. Financial Audit:

Resolution Trust Corporation’s 1995 Financial Statements, 

GAO/AIMD-96-123, at 8-9 (July 1996).

Congress may take actions short of termination by converting a 

government corporation into a private institution. For example, 

207Moe 1995, supra note 41, at 29.
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Congress converted the National Consumer Cooperative Bank from 

a mixed ownership government corporation to a federally chartered, 

private banking institution. See B-219801, October 10, 1986. Other 

government corporations are created with the goal of privatization. 

For example, the United States Enrichment Corporation (USEC) 

was directed to operate as a for–profit government corporation and 

work towards privatization.208 In 1996, Congress enacted legislation 

to privatize the USEC.209

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 60 days to wind up its 

affairs.210 Pub. L. No. 99-190, 99 Stat. 1185, 1249 (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; 103 Stat. 183.211

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. See B-280951, 

December 3, 1998. Subsequently, Congress granted the Commission 

greater autonomy and converted it into a revolving-fund agency. Id. 

at 6. Finally, Congress expanded the Commission’s business-like 

20842 U.S.C. §§ 2297d and 2297d-1 

209USEC Privatization Act, Pub. L. No. 104-134, tit. III, §§ 3101-3117, 110 Stat. 

1321-335 (1996). 

210For a more detailed discussion on this, see Moe 1995, supra note 41, at 19-22.

211For more detailed discussion on this, see Moe 1995, supra note 41, at pages 22-26.
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powers to its final status, when the canal was transferred from U.S. 

control, “as an autonomous entity that [could] compete as a 

commercial enterprise in international transportation markets.” Id. 

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.212 

1. Introduction There are certain items and services that employees and officers of 

the United States government need to carry out government 

business. Office supplies, telephones, and computers come to mind. 

There are other items and services that support the efforts of 

government employees and officers to carry out the government’s 

business by fulfilling their morale, welfare and recreation needs 

(commonly referred to as MWR). Often these MWR items and 

services have been viewed as frivolous and extravagant expenses 

that are unnecessary to carry out government business and should 

not be paid from tax dollars. However, bureaucrats do not live by 

red tape alone. While the private sector can provide some of these 

MWR needs, it has been unable or unwilling to meet all MWR needs 

at every location. Thus, the government has turned to other sources, 

such as non-appropriated fund instrumentalities or activities, to 

supply MWR items and services. Although non-appropriated fund 

instrumentalities or NAFIs, as they are commonly referred to, are 

related to the government and provide a wide range of governmentrelated services and activities, they occupy a unique legal status. 

212Jurisdiction 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).
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Before we turn to the various issues involved in NAFIs as we know 

them today, it is useful to understand their history and development. 

a. Historical Background The need to provide services and items to fulfill the morale, welfare 

and recreational needs of officers and employees 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.”213 From the time of the Roman 

Legions to the European armies and navies of the 17th and 18th 

centuries, these men, known as sutlers,214 followed armies and met 

ships in port in order to supply the soldiers and sailors with 

provisions and contraband. Id. Due to the monopolistic prices 

charged by sutlers, sailors organized their own ship cooperatives 

called “slop chests.” Id. 

The United States Government has, at times, directly provided items 

and services to meet the morale, welfare, and recreational needs of 

its officers and employees while, at other times, it has relied upon 

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”215

for the use of soldiers.216 The American Articles of War of 1775 also 

regulated the sutlers’ conduct, hours, and quality of items sold.217 

213Michael Francis Noone, Legal Problems of Non-Appropriated Funds, Mil. L. Rev. 

Bicentennial Issue, 1975 (Army Pamphlet 27-100) 357, 361. This article was 

originally published as Appendix 1 of the Hearings on S. 3163, Subcommittee on 

Improvements in Judicial Machinery, Senate Judiciary Committee, 90th Cong. 2d 

Sess. 201 (1968). We will cite to pages in the Military Law Review. 

214The term “sutler” means a small vendor, derived from the word “soltelen” which 

means to befoul or perform mean duties. Id. at 361. 

215Winthrop’s Military Law and Precedents, American Articles of War of 1775,

Article LXVI, 953, 958 (2d ed., 1920 reprint) (hereafter cited as Winthrop).

216Paul J. Kovar, Legal Aspects of Nonappropriated Fund Activities, 1 Mil. L. Rev. 95, 

96 (Army Pamphlet 27-100-1) (1958).

217Winthrop, supra note 215, Art. XXXII, LXIV, LXV, and LXVI, at 953. 
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For example, although sutlers were not a component part of the 

Army, they were subject to the orders and regulations of the 

Continental Army and later the United States Army and local 

commanders.218 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.219 Commanding 

officers had duties relating to suttling which required them to see 

that sutlers supplied soldiers with good and wholesome provisions 

at a reasonable price.220 Commanding officers were prohibited 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.221 The American Articles of War of 1775 also established a 

fund for fines collected from soldiers and officers for behaving 

indecently or irreverently during religious services.222 The fund was 

to be used to aid sick soldiers of the troop or company to which the 

offenders belonged.223 This is the first record we have of a United 

States Government nonappropriated fund activity.224 

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.225 In 1847, Congress abolished sutlers’ rights to 

have such a lien on a soldier’s pay. Act of March 3, 1847, 9 Stat. 185. 

Congress reinstated and abolished the sutlers’ right to have a lien on 

a soldier’s pay several times throughout the next decades.226 In 1862, 

218Id., Art. XXXII, at 956.

219Id., Art. LXIV, at 958.

220Id., Art. LXV, at 958.

221Id., Art LXVI, at 958.

222Id., Art. II, at 953.

223Id.

224Stephen Castlen, Let the Good Times Role: Morale, Welfare, and Recreation

Operations, Army Law., 3, 6 (June 1996) (Army Pamphlet 27-50-283). 

225Id. at 6.

226E.g., Act of June 12, 1858, 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, 

12 Stat. 331 (abolished the sutlers right to have a lien on a soldier’s pay). 
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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, 

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. 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. However, the sale of 

liquor was prohibited. Id.

The sutlers were assessed fees for the privilege of doing business. 

The fees were based upon the average number of soldiers in a unit. 

Fines were assessed for violation of regulations. Both were 

deposited into the “post fund” administered by a group of officers, 

known as the “Council of Administration,” along with the post 

commander. Kovar, supra note 216, at 97. The post fund, analogous 

to what we now call a NAFI, was used to aid indigent widows or 

children of deceased soldiers, disabled soldiers discharged without 

pensions, to buy books and periodicals for the post library, and to 

support 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, supra note 213, at 363.

The sutler system was subject to many abuses; soldiers were 

cheated, charged usurious interest, and military officials and the 

merchants were involved in fraud and corruption. Appropriated

Fund Support for Nonappropriated Fund and Related Activities in

the Department of Defense, GAO/FPCD-77-58, 4 (August 31, 1977). 

In 1866, Congress responded to these abuses by abolishing the office 

of sutler effective July 1, 1867. Id.; 14 Stat. 328, 336 (1866). 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. 328, 336 (1866). In 1867, Congress 

authorized the Commanding General of the Army to permit the 

establishment of trading posts on certain military posts. Joint 

Resolution of 30 March 1867, 15 Stat. 29. Where the commissary 
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department was prepared to supply stores to soldiers (in 

compliance with the 1866 act, 14 Stat. 328), traders were not 

permitted to remain at such posts or sell any goods kept by the 

commissary department. Id. 

In 1870, Congress repealed the Joint Resolution of March 30, 1867, 

and enacted legislation which authorized 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.227 Act of July 15, 1870, 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, supra note 216, 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 supra note 216, at 101. At posts where there were no 

post traders, commanders were authorized to establish canteens to 

supply troops with articles for their entertainment and comfort at 

moderate prices. The following year, in 1890, all posts were 

authorized to establish canteens. Post commanders were permitted 

to 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. 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. Canteens were authorized to use profits to purchase 

sporting equipment and any items that would contribute to the 

“rational enjoyment and contentment of the soldiers.” Id. 

Canteens evolved into the post exchanges which performed 

essentially the same functions. Kovar, supra note 216, at 102; Noone, 

supra note 213, at 365. By 1893, the post exchange had taken over 

the services provided by the post trader and Congress prohibited the 

227This 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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Secretary of War from making further appointments of post traders 

or from filling vacancies. Act of January 28, 1893, 27 Stat. 426. In 

1895, the War Department established post exchanges at all military 

posts. Kovar, supra note 216, at 102, citing General Order No. 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 which 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, supra note 213, 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, supra note 213, 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 

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, 27 Stat. 174, 178.228 

The post exchange and post and company funds continued to carry 

out MWR functions until after World War I. Kovar, supra note 216, at 

102. After World War I, the War Department created and expanded 

228This law is now codified at 10 U.S.C. § 4779.
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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, supra note 224, at 8; 

Kovar, supra note 216, at 102-103. The War Department established a 

Morale Branch in 1941 to provide MWR services. Id. 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. 

The military nonappropriated fund activities have grown in size and 

complexity. There are also nonappropriated fund activities serving 

civilian officers and employees of the government. However, their 

basic purpose is the same; to provide for the morale, welfare and 

recreation of government officers and employees. 

b. Defining the Nonappropriated 

Fund Activity

“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).229

While defining the term “nonappropriated funds” may pose some 

challenges, we can agree that the term appropriated funds refers to 

funds provided in a regular annual appropriation act or a continuing 

or permanent appropriation created when a statute authorizes the 

obligation and expenditure of funds and designates the funds to be 

used. 63 Comp. Gen. 331 (1984). An exception to this general rule 

occurs when Congress designates funds by statute to be 

nonappropriated funds, which are not subject to the statutory 

controls and restrictions applicable to appropriated funds. See, 

B-217578, October 16, 1986; 12 U.S.C. § 481 (1982) (funds available 

to the Comptroller of the Currency); 12 U.S.C. § 244 (1982) (funds 

available to the Board of Governors of the Federal Reserve). 

However, the term “nonappropriated funds” in those examples 

describe the status of those funds and not the instrumentalities 

which are the subject of our discussion. NAFIs are different from 

229Nonappropriated 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 Corporation v. United States, 926 F.2d 1126, 1130 (Fed. Cir. 1991). 
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both the agencies funded by appropriations and those financed by 

funds deemed to be “nonappropriated.” 

As recognized by Representative Wiggins, it is difficult to define 

what NAFIs are, since even the few characteristics generally used to 

describe them are not absolute. While NAFIs act in their own name, 

federal agencies create them and regulate their activities. However, 

NAFIs are not federal agencies or government corporations. They 

are not typical private or commercial enterprises, although they may 

operate on a for-profit basis. GAO views their operation with mainly 

nonappropriated funds as the defining characteristic of NAFIs: 

“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, 111 (1984). 

The Department of Defense defines a nonappropriated fund 

instrumentality as:

“An integral DoD organizational entity that performs an essential government 

function. It acts in its own name to provide or assist other DoD organizations in 

providing MWR programs for military personnel and authorized civilians. It is 

established and maintained individually or jointly by the Heads of DoD 

Components. As a fiscal entity, it maintains custody of and control over its NAFs 

[nonappropriated funds]. It is also responsible for the exercise of reasonable care 

to administer, safeguard, preserve, and maintain prudently those appropriated fund 

resources made available to carry out its function. It contributes, with its NAFs to 

the MWR programs of other authorized organizational entities, when so authorized. 

It is not incorporated under the laws of any state or the District of Columbia and it 

enjoys the legal status of an instrumentality of the United States.” “Establishment, 

Management, and Control of Nonappropriated Fund Instrumentalities,” Department 

of Defense Directive 1015.1, Encl. 2, ¶ 2, August 19, 1981 (hereafter DoDI 1015.1).

One court described NAFIs as follows:

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).
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From the Bowen case, GAO identified the following characteristics 

for determining whether a particular activity is a nonappropriated 

fund activity:

“1. The activity is 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.

“4. The operations of the activity are financed by the proceeds therefrom rather 

than by appropriations.” B-167710-O.M., May 6, 1976.

Although many NAFIs share these characteristics, GAO noted that 

they are not absolute and should be applied on a case-by-case basis 

in order to determine whether an entity is a NAFI. Id. 

One important characteristic that defines NAFIs, and also 

distinguishes them from federal agencies or private commercial 

enterprises is the purposes for which they are created. That is, to 

meet the morale, welfare and recreational needs of government 

officers and employees. DoD articulates the importance of MWR 

programs, many of which are carried out by NAFIs, 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.” “Morale, Welfare, and Recreation (MWR), DOD Instruction No. 

1015.10” ¶ 4.2, November 3, 1995.

While many MWR needs are met by profitable commercial-type 

operations, such as the post exchanges, child care centers, golf 

courses, restaurants, and gyms, profits are not the overriding goal. 

Although they are defined as using nonappropriated funds, in cases 

where NAFIs have not been profitable or self-sustaining, the 

Government has subsidized their operations with appropriated 

funds in order to ensure the MWR needs are met. Where profitable, 
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the disposition of NAFI profits also differs from typical commercial 

enterprises which would normally benefit owners or stockholders. 

For example, DoD NAFIs use their profits to support MWR 

programs.

Although some are capable of providing services or goods needed by 

the Government, the Comptroller General has held that as a general 

rule, nonappropriated fund activities “are not in the business of 

supplying the Government with its procurement needs,” unless 

there are exigent circumstances or situations where it is 

impracticable to obtain services from others. 58 Comp. Gen. 94, 98 

(1978). 

Serving the needs of government officers and employees with goods 

and merchandise purchased through NAFIs is not limitless. NAFIs 

provide government officers and employees with items and services 

for their personal consumption, not for their business, profit making 

motives. Covill v. United States, 959 F.2d 58 (6th Cir. 1992) (Coast 

Guard Warrant Officer received a punitive letter of reprimand 

because he purchased merchandise from a NAFI purportedly for 

personal use, but instead, used the merchandise in his restaurant 

where he sold it at retail to the general public.) 

2. Legal Status

a. Authority for Creation Statutory authority is not needed to create nonappropriated fund 

activities.230 In fact, many NAFIs were created and regulated by 

governmental agencies, and only later received congressional 

approval and, sometimes, statutory authority for their operations. 

See B-167710-O.M., May 6, 1976. This lack of congressional authority 

for their creation and regulation does not, however, invalidate their 

legal status. See Dugan v. United States, 34 Ct. Cl. 458, 466-67 (1899). 

In a case involving nonappropriated fund activities, specifically the 

military post exchanges, the Supreme Court stated:

230Compare 31 U.S.C. § 9102, which provides that: “[a]n 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.”
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“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). 

Of course, this does not mean that Congress cannot legislate to 

create a nonappropriated fund activity or to approve one already in 

existence. E.g., 7 U.S.C. § 2279b (operation of Graduate School of 

Department of Agriculture as a nonappropriated fund 

instrumentality). 

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.”231 

Despite their peculiarities, 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 (1986). 

The Standard Oil decision, 316 U.S. 481 (1942), involved a tax levied 

upon sales to NAFIs. 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. Id. at 482. 

Upon appeal to the Supreme Court, the determining issue was the 

relationship between post exchanges and the United States 

government. The Supreme Court recognized several factors as 

important indicia of governmental status: The post exchanges were 

established pursuant to regulations of the Secretary of War 

231Noone, supra note 213, at 359. 
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statutorily sanctioned by Congress. 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. The 

purpose of the post exchanges was to provide a convenient source 

of low priced goods for soldiers. The Government did not assume 

any of the financial obligations of the post exchanges, but was 

responsible for the funds obtained. Profits were used only for the 

welfare, pleasure and comfort of the troops. 

“These regulations and the practices under them establish the relationship between 

the post exchange and the United States government, and together with the 

relevant statutory and constitutional provisions from which they derive, afford the 

data upon which the legal status of the post exchange may be determined . . . .

“[W]e 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.” Standard Oil v. Johnson, 316 U.S. at 483, 485.

For this reason, the Supreme Court concluded, the state could not 

tax the fuel sold to the post exchanges. Id. at 485. The relationship of 

NAFIs to the Government has also been considered in cases 

involving contract matters. For example, in Nimro v. Davis, 204 F.2d 

734 (D.C. Cir. 1953), suit was brought against the board members of 

a Naval Gun Factory Lunchroom Committee for “services rendered 

and expenses incurred.” Id. at 734. The committee was composed of 

naval officers and civilian employees who argued that the board, as 

an instrumentality of the Navy Department, was immune from suit 

to the same extent as the Department itself. To counter this defense, 

the plaintiff 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.

The court held that the Naval Gun Factory Lunchroom Committee 

was a nonappropriated fund 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. The court found the individuals comprising the NAFI’s 

board to be acting for and on behalf of the United States, and not in 
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any private capacity. As such, the suit comprised an action against 

the United States that could not be maintained without its consent. 

Id. at 736.

Another contract case concerned a company which agreed with a 

Post Office Employee Welfare Committee to install vending 

machines in the Post Office for a term of five years. The Employee 

Welfare Committee notified the vending machine company of its 

intent to terminate the contract before the end of the five year term. 

The company sued the employees to enforce the contract. In reply, 

the employees moved to dismiss the case, arguing that the suit was 

not against them in their individual capacities, but against the 

Employee Welfare Committee—an instrumentality of the United 

States Government which was entitled to governmental immunity. 

Applying the elements set forth in the Standard Oil decision, the 

court held that the Post Office 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 v. Ruppert, 269 F. Supp. 588 (S.D. Ia. 1967). Since the 

United States had not consented to suit, the court dismissed the 

case. Id. at 592. See also Employees Welfare Comm. v. Daws, 

599 F.2d 1375 (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 committees, the Postal Service regulated and 

controlled vending stands and machines, and the primary objective 

of the committees was to further the interests of the Postal Service. 

Automatic Retailers of America, 269 F. Supp. at 591. 

However, there are also times when NAFIs are not considered 

government instrumentalities; hence, their bizarre legal status. For 

example, the actions of nonappropriated fund employees are not 

always attributable to the government, as seen in cases involving 

government mishandling in receipt of bids. There was a time when, 

under contract with base exchanges, telegraph offices were 

routinely operated on military bases by nonappropriated fund 

activity employees. On occasion, 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. Since the government’s 

mishandling of bids provided a basis for accepting an otherwise late 
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bid, prospective bidders have argued that the delay in delivery by 

the base exchange telegraph office was attributable to the 

government. 50 Comp. Gen. 76 (1970); B-186794, November 11, 1976. 

GAO held that where the nonappropriated fund activity acts as the 

agent for the telegraph company, as the contract stipulated in those 

cases, the activity was not an instrumentality of the government, and 

the NAFI’s actions were not attributable to the government. 

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, October 30, 1984. 

a. Self-Supporting or Subsidized? The name suggests that a 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 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 government officers and employees. 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. Others still argue that the taxpayers should not pay for any 

employee recreational expenses. That group advocates 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 “nonappropriated 

fund instrumentalities.” 

b. Appropriated Funds for 

Morale and Welfare: The Early 

Rule

Whether appropriated funds are legally available to support NAFIs 

depends on whether appropriated funds are legally available for 

MWR expenses. The general rule, established in early decisions, is 

that expenses associated with employee morale, welfare and 

recreation cannot be paid from appropriated funds unless 

specifically authorized by law. 18 Comp. Gen. 147 (1938) (River and 

harbor appropriation not available to provide recreational activities 

for workers); 27 Comp. Gen. 679 (1948) (Navy appropriations not 
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available to hire full-time or part-time employees for recreational 

programs for civilian employees of Navy). 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, 

while simultaneously satisfying entirely personal expenses. E.g., 

18 Comp. Gen. 147. 

In addition, several laws specifically prohibited the use of 

appropriated funds for certain MWR expenses. As early as 1892, 

Congress passed legislation prohibiting the use of appropriated 

funds of the various armed forces for the exchanges. Act of July 16, 

1892, 27 Stat. 174, 178, now codified at 10 U.S.C. §§ 4779, 9779 (Army 

and Air Force, respectively). More recently, Congress passed a law 

expressly prohibiting the Department of Defense from using 

appropriated funds for equipping, operating, or maintaining golf 

courses at DOD facilities or installations. 10 U.S.C. § 2246(a).232 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, March 17, 1998. Although other laws 

permitted DOD to participate in water conservation projects, or 

federal agency cooperative efforts to resolve water resource issues 

in concert with conservation of endangered species, those laws did 

not override the prohibition of section 2246. Id.

The rule appears to be simple—that appropriated funds may not be 

used to support NAFIs unless specifically provided by law. However, 

again, like many things in law, and life, it is not, in fact, that simple. 

Both the analysis described in the general rule and congressional 

action have evolved. 

c. The Current Trend: Use of 

Appropriated Funds

Agencies have used the necessary expense doctrine in order to 

analyze whether to pay for certain morale, welfare and recreation 

expenses. The test evaluates whether the agency has a legitimate 

interest in the MWR needs of its employees. The cases have 

increasingly recognized that 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 facilities would not otherwise be available 

232Section 2246(b) exempts golf courses at installations outside the United States or 

at remote and isolated locations as designated by the Secretary of Defense.
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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 

multi-day cruises); B-144237, November 7, 1960 (transportation of 

musical instruments, sports and recreational equipment to isolated 

Weather Bureau installations in the Arctic); B-61076, February 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 for several reasons. First, in both the 

context of the necessary expense rule and in obtaining 

congressional action, 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. Congress has also specifically permitted the military to 

assist NAFIs in several respects. For example, the same law that in 

1892 prohibited the use of appropriated funds for the post 

exchanges, authorized those NAFIs to use public buildings or 

transportation not required by the military.233 

Congress has specifically authorized the use of certain appropriated 

funds for MWR expenses. See 10 U.S.C. § 2241 (authorizing the use 

of Operation and Maintenance appropriations for MWR). While this 

provision was made permanent in 1983, GAO cases have referred to 

annual appropriation acts making O&M appropriations available for 

morale and welfare expenses since at least 1965. See B-154547-O.M., 

July 7, 1965. Congress has appropriated advances for the 

establishment of NAFIs which were to be repaid to the Treasury. See

B-156167, July 18, 1967 (Advances to Midshipmen’s Store Fund). In 

some cases, Congress repealed the statutory authority requiring the 

repayment to the Treasury of sums advanced to NAFIs. Id. at 2. 

233Act of July 16, 1892, 27 Stat. 174, 178, codified at 10 U.S.C. §§ 4779, 9779 (Army 

and Air Force, respectively).
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GAO decisions have recognized all of these factors in determining 

the propriety of using appropriated funds to support NAFIs. In 

internal memorandum, GAO considered whether travel relating to 

business of the Army and Air Force Exchange Service (AAFES) 

could be paid from appropriated funds. B-120139-O.M., August 16, 

1954. Since expenses for travel involving public business could be 

paid 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. For example, travel for the 

purposes of inspecting, auditing, or investigating exchange 

activities, attending exchange conferences, coordinating exchange 

matters or attending exchange schools involve command 

supervision and may be paid from appropriated funds as travel in 

connection with public business. However, the Comptroller General 

said that travel for the purpose of purchasing exchanges supplies for 

resale did not relate to command supervision and could not be 

considered as travel on public business. Id. 

A few years later, GAO considered whether travel by a member of 

the Army in order to participate in a field artillery basketball 

tournament as a nonparticipating coach was travel for public 

business which could be paid from appropriated funds. B-133763, 

November 13, 1957. 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) would be paid. 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.
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GAO has considered whether appropriated funds could be used to 

pay other expenses on behalf of NAFIs, such as construction, 

repairs or leasing of buildings and facilities. Generally, those 

expenses can be paid from appropriated funds. For example, in 

B-147516-O.M., January 24, 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 NAFIs. Both the Secretary of Defense’s authority 

and Air Force regulations supported the maintenance of MWR 

programs with appropriated funds. The memorandum noted that 

Congress had recognized the use of public buildings by exchanges in 

a permanent provision in the Army’s appropriation act since fiscal 

year 1893.234 As early as 1903, Congress had authorized the use of 

appropriated funds of the Army for construction, equipment and 

maintenance of buildings for exchange activities. Id. at 3. 

While more current appropriations did not include specific 

authorization for such expenses, GAO deferred to the interpretation 

of the military departments that the general authorization of 

appropriated funds for repair and maintenance of facilities included 

those used of MWR activities. Finally, Congress had been notified of 

the military departments’ interpretation. 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 nonappropriated fund activities. In effect, GAO was asked 

whether DOD could use appropriated funds to lease hotel facilities 

for a nonappropriated fund activity. GAO answered, “yes,” albeit 

with some hesitation. In B-154547-O.M., October 20, 1964, 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, to justify 

leasing buildings and space for NAFIs. GAO said “not good enough,” 

noting that DOD had no specific authority to lease a building for a 

nonappropriated fund activity. Unless the Department of Defense 

could provide another interpretation of its authority to lease 

234Act of July 16, 1892, 27 Stat. 174, 178, codified at 10 U.S.C. §§ 4779, 9779 (Army 

and Air Force, respectively).
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facilities for nonappropriated fund activities, GAO would conclude 

that DOD could not do so. Id. In a subsequent memorandum, GAO 

altered course, deferring to DOD’s interpretation since 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 another office memorandum dated 

February 21, 1975,235 GAO analyzed whether the Air Force could 

acquire land solely for recreational purposes. 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. Id. 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. Id. 

While GAO decisions increasingly recognized the use of 

appropriated funds for expenses related to MWR, GAO also reported 

on the improper use of appropriated funds to support 

nonappropriated fund activities, such as restaurants, stores, golf 

courses, and theaters, and recommended changes in accounting, 

billing, reimbursements and legislation. In a 1949 report on 

nonappropriated funds, 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, August 10, 1949, p.1. GAO had several concerns: (1) 

whether these activities were authorized to withhold revenues, 

donations and contributions arising from such 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. 

235Unnumbered case dated February 21, 1975, found in GAO Manuscript Volume 

642, February 1975, Pt. B, Appendix 10. 
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In 1975, Congress authorized GAO to audit the operations and 

accounts of nonappropriated fund activities.236 In a 1977 report, 

GAO listed those NAFIs, a brief description of each one, their assets, 

and gross revenues. Magnitude of Nonappropriated Fund and

Related Activities in the Executive Branch, GAO/FPCD-77-28, 

April 25, 1977. The report noted that some agencies maintained that 

their programs were not NAFIs, but rather, private associations not 

officially a part of the government. “Varying interpretations are 

understandable,” the report stated, “since there is no official 

definition of what is or is not a nonappropriated fund activity.” Id. 

at i. GAO cited an earlier OMB study which found that the lack of a 

government-wide definition of NAFIs caused confusion and 

precluded a reliable review of all NAFIs. Id., citing OMB, Study of

Procurement Payable for Nonappropriated Funds (August 1975). 

Later that same year, 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. Unauthorized and Questionable Use of Appropriated

Funds to Pay Transportation Costs of Non-Appropriated Fund

Activities, Department of Defense, GAO/LCD-76-233, 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, 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.

Later in 1977, GAO reported that the government spent over $600 

million each year to subsidize DOD NAFIs. Appropriated Fund

236Pub. L. No. 93-604, January 2, 1975, § 301, 88 Stat. 1959, 1961-62, codified at

31 U.S.C. § 3525.
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Support for Nonappropriated Fund and Related Activities in the

Department of Defense, GAO/FPCD-77-58, August 31, 1977. GAO 

also 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 30. Further 

complicating matters, GAO reported that other costs were 

overstated. Id. 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 non-military 

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. Appropriated

Fund Support for Nonappropriated Fund and Related Activities of

the Department of Defense, Testimony before the Nonappropriated 

Fund Panel of the Subcommittee on Investigations of the Committee 

on Armed Services, September 27, 1977. 

The House Armed Services Committee, in its report on the National 

Defense Authorization Act for fiscal year 1987, directed DOD to use 

appropriated funds primarily to support MWR activities that do not 

generate revenues and to minimize the use of appropriated funds for 

MWR activities that generate revenues. H.R. Rep. No. 99-718, 

at 165-66 (1986). DOD divided its MWR activities into three 

categories receiving varying degrees of appropriated fund support. 

DOD categorized activities considered essential in meeting the 

services’ military objectives, such as physical fitness facilities and 

libraries, as Category A, mission-sustaining programs. Missionsustaining activities are not expected to generate revenues and are 

supported primarily with appropriated funds. DOD categorized 

activities that are closely related to supporting military missions, 

such as outdoor recreation, child care centers and youth activities, 

as Category B, community support programs. Community support 

programs are generally able to generate revenues, but also receive 

some appropriated fund support. Activities in Category C, revenuegenerating programs, are as their name suggests business-type 

activities that can generate enough income to cover most of their 

operating expenses. Category C programs may receive some 

minimal appropriated fund support, such as maintenance and repair 

of real property, but are expected to be primarily self-supporting. 
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The Senate Committee on Appropriations and the Committee of 

Conference on DOD’s appropriation for fiscal year 1988, reviewed 

DOD’s policy and directed DOD to implement it.237 

d. Other Issues in Appropriated 

Fund Support

In addition to direct appropriated fund support, NAFIs also receive 

support through the unreimbursed use of government employees in 

their operations. For example, see B-215580, December 31, 1984 

where the Army operated a child care center using both 

appropriated and nonappropriated funds. Appropriated funds were 

used to pay the salaries of supervisory personnel, apparently 

employed by the Army, and nonappropriated funds were used to pay 

the salaries of teachers, food service workers and other subordinate 

personnel, apparently employed by the NAFI. 

In B-192859, April 17, 1979, the Comptroller General considered 

whether the Army could reimburse a NAFI for services provided. 

The NAFI in question, a consolidated post housing fund, provided 

maid and custodian services, yard cutting and watering services, 

maintenance of roads, snow removal and general 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. 

The Comptroller General stated that without specific statutory 

authority, appropriated funds are not available to support activities 

of a nonappropriated fund instrumentality. Since most of the 

services provided were actually the Army’s responsibility rather 

than the responsibility of the NAFI, the NAFI could be partially 

reimbursed. 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 that case, 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. For those services for which the Army 

was responsible and had received the benefit of the services, the 

NAFI could be reimbursed on a quantum meruit basis, if ratified by a 

contracting official of the Army. For those services that were not the 

237S. Rep. No. 100-235, at 60-1 (1987); H.R. Rep. No. 100-498, at 518-19 (1987).
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responsibility of the Army, the NAFI could not be reimbursed with 

appropriated funds. 

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. The dairy farm 

was originally purchased using an advance of appropriated funds to 

be repaid to the Treasury. While the NAFI remained obliged to 

eventually reimburse the Treasury for the advanced funds, once the 

funds had been advanced, they became NAFI funds and the farm, 

NAFI property. Thus, the sale of the farm realized a gain for the 

NAFI that had nothing to do with its debt to the Treasury. The 

proceeds of the sale could be credited to the NAFI. 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 Act (as discussed in 

Chapter 6 of this work) 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. Fares purchased 

directly or reimbursed by the Government by its personnel, 

dependents, and contractor employees would provide the carrier’s 

revenue. In return for landing rights and ground support the 

contractor would pay a “concession fee” (i.e., a rebate) for deposit 

to the base MWR fund, a NAFI. The court concluded that the 

Miscellaneous Receipts Statute requires the deposit of funds to the 

Treasury and there was no authority in this case to divert those 

funds to an MWR fund. Id. at 421. 

In Scheduled Airlines Traffic Offices, Inc. 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 
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Treasury and fees for unofficial travel were deposited to the local 

MWR fund, a NAFI. The travel agency, SATO, had bid unsuccessfully 

on similar contracts in the past. Through informal channels, it 

learned that the agency made its award determinations “largely to 

maximize payments to the local Morale Funds.” Id. at 1358. 

Realizing that the agency planned to continue its previous award 

policies, SATO sought an injunction to force the agency to change its 

policy. 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. The 

Government argued that this contract was different from the one in 

the Reeve Aleutian: The concession fees were derived solely from 

unofficial travel paid for by private funds and were not government 

funds. 

The Court of Appeals for the District of Columbia Circuit concluded 

that the fees were government funds. 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. SATO, 87 F.3d 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. 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 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 Act. 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. The decision also may have other potential 

implications for revenues generated by NAFIs that are supported in 

any manner or at any level by the government. 

e. Borrowing by 

Nonappropriated Fund Activities

GAO has determined that NAFIs have the authority to borrow funds 

from commercial sources. In B-148581-O.M., December 18, 1970, 

GAO found that no federal law specifically prohibited AAFES (the 

military post exchange NAFI in question) from borrowing funds. 

GAO observed that the general laws governing borrowing by the 
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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., December 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 NAFIs 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

Intra-Agency 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 can’t contract with himself, or so theory holds. 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 NAFIs are 

instrumentalities of the United States Government, the Economy 

Act does not apply to nonappropriated fund activities. 64 Comp. 

Gen. 110 (1984) (Department of Agriculture Graduate School, a 

NAFI, could not enter into Economy Act agreement with a federal 

agency); 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 part of the Government, 

NAFIs are not federal agencies and don’t have appropriated fund 
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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” and he believed that it was those 

differences, rather than their status as Government 

instrumentalities, which were controlling. 58 Comp. Gen. at 97. The 

Comptroller General further noted that Congress has no direct 

control, through appropriations, over the accounts of the 

nonappropriated fund activities (and neither did GAO, through its 

account settlement authority). Thus, obtaining goods and services 

from a nonappropriated fund activity is “tantamount to obtaining 

them from non-Governmental, commercial sources.” Id. at 98. 

Similarly, when considering the use of inter-agency 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 nonappropriated 

fund instrumentalities. 64 Comp. Gen. at 113, (Decision also 

concluded that the Government Employees Training Act, 5 U.S.C. 

§ 4104, did not constitute authority for inter-agency agreements 

between federal agencies and nonappropriated fund activities for 

the same reasons). 

b. Contracting to Sell Goods

and Services to Agencies

Although obtaining goods and services from NAFIs is “tantamount 

to obtaining them from non-Governmental, commercial sources,” 

the Comptroller General has questioned whether it is appropriate 

for them to provide services to federal agencies at all—noting that 

NAFIs exist to help foster the morale and welfare of military 

personnel and their dependents. 58 Comp. Gen. 94, 98 (1978). 

Providing the Department of Defense with goods or services to carry 

out its regular operating activities is not directly related to that 

purpose. Thus, the Comptroller General would normally view the 

sale of goods and services by NAFIs to regular governmental 

operating activities to be outside the scope of the NAFIs proper 

functions. Accordingly, the Comptroller General opined that, as a 

general rule, there should be no competition between 

nonappropriated fund activities and commercial sources simply 

because NAFIs normally sell to military personnel, not government 

agencies. Id. 

However, there are circumstances in which agencies and NAFIs do 

engage in the exchange of goods and services and there may be 
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situations where procurement through a nonappropriated fund 

activity might be proper. For example, 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. Perhaps, even a sole source 

contract might be proper. Id.; B-235742, April 24, 1990 (proposed 

sole-source award to nonappropriated fund activity for lunchroom 

monitoring services at Department of Defense dependent schools 

was proper). On the other hand, in 58 Comp. Gen. 94, it was 

improper for a nonappropriated fund activity 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. 

Subsequently, the Comptroller General has stated broadly that 

NAFIs may compete to provide goods or services to agencies in the 

competitive procurement process without addressing whether 

exigent, urgent circumstances existed or whether it was 

impracticable for a source other than a NAFI to provide the goods. 

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, December 31, 

1984 (Army could not purchase child care services from 

nonappropriated fund activity 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; B-274795 January 6, 1997. 

Sole-sourcing, however, is another matter. In one 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, 

September 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 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 non-competitive procurement. Id. See also
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58 Comp. Gen. at 98-99. (“In such cases, appropriate sole-source 

justifications should be prepared.”). 

Where nonappropriated fund activities provided services to federal 

agencies under inter or intra-agency 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, August 25, 1980; B-192859, April 17, 1979.

c. Authority under 10 U.S.C.

§ 2482a

Congress has recently provided statutory authority for certain 

nonappropriated fund activities to enter into contracts and 

agreements with other Federal agencies or instrumentalities. 

In 1990, Congress authorized the Graduate School of the 

Department of Agriculture to enter into agreements to provide 

training and other services incidental to training to Federal agencies 

under the provisions of the Economy Act.238 

As part of the 1997 National Defense Authorization Act,239 Congress 

authorized agencies and instrumentalities of the Department of 

Defense that support operation of the exchange system, or a morale, 

welfare and recreation 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, supra

note 239.

 Congress noted that exchanges and the MWR programs need to 

become more efficient, and determined that this could be achieved 

238Pub. L. No. 101-624, § 1669, 104 Stat. 3359, 3768 (1990), codified at 7 U.S.C. 

§ 5922(a).

239Pub. L. No. 104-201, Div. A, tit. III, § 341(a)(1), 110 Stat. 2488 (1996), codified at 10 

U.S.C. § 2482a.
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by permitting contracting between those activities and federal 

agencies. H.R. Rep. No. 104-563 at 278 (1996), reprinted in

1996 U.S.C.C.A.N. 2948, 2989. 

5. Nonappropriated Fund 

Contracting

Obviously, NAFIs have to procure goods and services for MWR 

programs. This section addresses the applicable procurement 

policies and procedures.

a. Federal Procurement Laws 

and Regulations

As a general rule, the procurement laws and regulations applicable 

to the federal government do not apply to nonappropriated fund 

instrumentalities because these laws generally apply to federal 

agencies or contracts for the government and NAFIs do not fall 

within either category.

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. 

As we have discussed, NAFI contracts are made for the benefit of 

government officers or employees in their individual personal 

capacity, not in their official capacity, and not for the operations of 

the government. 

Competition in Contracting Act—The Competition in Contracting 

Act of 1984 (CICA)240 made several changes to procurement 

provisions, including GAO’s bid protest authority (which we will 

discuss later). Its applicability depends on the definition of “federal 

agency” found in the Federal Property and Administrative Services 

Act, 40 U.S.C. § 472. Federal agency includes an executive branch 

agency. 40 U.S.C. § 472(b). An executive branch agency includes any 

executive department or independent establishment, including 

wholly-owned government corporations. 40 U.S.C. § 472(a). 

However, it does not include nonappropriated fund 

instrumentalities which, although recognized as government 

instrumentalities associated with and supervised by government 

entities, operate without appropriated funds and are not federal 

agencies. B-270109, February 6, 1996; B-228895, December 29, 1987. 

240Pub. L. No. 98-369, Title VII, 98 Stat. 494, 1175 (1984).
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Armed Services Procurement Act of 1947—Although many NAFIs 

are related to the Department of Defense, where appropriated funds 

are not directly involved, the Armed Services Procurement Act and 

armed services and defense acquisition regulations do not apply. 

Ellsworth Bottling Company v. United States, 408 F. Supp. 280 (W.D. 

Okla. 1975); 58 Comp.Gen. 94, 98 (1978). See also 10 U.S.C. 

§ 2303(a) (chapter applies to procurements for which payments are 

to be made from appropriated funds). 

Federal Property and Administrative Services Act of 1949—As 

discussed under the CICA provisions, NAFIs are not “federal 

agenc[ies]” for purposes of the Federal Property and Administrative 

Services Act of 1949 (FPASA). Also, the provisions of the FPASA 

would not apply to military NAFIs since section 302 of the FPASA 

excludes defense agencies from the provisions of title III of that Act. 

41 U.S.C. § 252(a) (1982). See 66 Comp. Gen. 231, 235 (1987). 

Ellsworth Bottling Co. v. United States, 408 F. Supp. 280, 283-84 

(1975). (Army and Air Force Exchange Service (AAFES) is not 

subject to the FPASA as it is part of the Departments of Army and 

Air Force and is not an executive department or independent 

establishment). 

Federal Acquisition Regulation—The Federal Acquisition 

Regulation (FAR), the government wide 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. However, there are 

circumstances in which appropriated funds are used for NAFI 

purchases. In those situations, the FAR and applicable agency 

regulations apply to the purchase. See, e.g., Army Regulation 215-1, 

para. 7-34. For example, when nonappropriated funds are used for 

NAFI contracting, Army regulations apply. Army Regulation 215-1, 

para. 7-34 and Army Regulation 215-4. 

b. Use of Federal Agency 

Procurement Process

Although NAFIs are not required to use the federal procurement 

process for their nonappropriated fund procurements, in some 

cases federal agencies conduct procurements on their behalf. For 

example, for Army NAFIs, Army regulations provide that 

appropriated fund contracting officers will award and administer 

NAFI contracts in excess of $25,000 and may award and administer 

NAFI contracts regardless of dollar amount if the NAFI contracting 
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office cannot. Army Regulation 215-4, para. 1-7(a). However, since 

the decision in Scheduled Airlines Traffic Offices, Inc. v. Department

of Defense,

241 discussed previously, there are open questions as to 

whether the Government should administer NAFI contracts and 

other potential implications for revenues generated by NAFIs that 

are supported in any manner or at any level by the Government.

6. Debts Due 

Nonappropriated Fund 

Activities

Despite their close association with the government, debts owed 

nonappropriated fund activities are not debts owed the United 

States. Kenny v. United States, 62 Ct.Cl. 328 (1926). Until recently, 

this had a profound impact on the debt collection tools available to 

NAFIs. For example, Thomas Kenny was an Army officer 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. Superintendent Kenny 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. Kenny, 62 Cl. 

Ct. 328. 

Similarly, in 43 Comp. Gen. 431 (1963), GAO held that a debt owed to 

a nonappropriated fund activity 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, 

September 21, 1970, where GAO held that a debt owed by a former 

employee of the Defense Supply Agency to a nonappropriated fund 

activity could not be set off against his final compensation or the 

amount to his credit in the Civil Service Retirement Fund. B-170400, 

February 2, 1971 (reaffirming the holding in B-170400, September 21, 

1970).

Various federal laws, including the Federal Claims Collection Act of 

1966, as amended by the Debt Collection Act of 1982 and the Debt 

Collection Improvement Act of 1996, 31 U.S.C. ch. 37, provide 

federal agencies, including instrumentalities of the government, 

with methods to collect their debts, such as salary offset and 

administrative offset of monies otherwise payable to debtors. The 

24187 F.3d 1356 (D.C. Cir. 1996).
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Debt Collection Improvement Act of 1996 amended the terms 

“claim” or “debt” to include “expenditures of nonappropriated 

funds.” NAFIs also have recourse to other federal collection 

resources. For example, section 1007 of title 37 of the United States 

Code authorizes the Department of Defense to collect debts owed 

by service members to its instrumentalities, including 

nonappropriated fund instrumentalities, by deducting that amount 

from the member’s pay in monthly installments. 

Courts have held that for purposes of setoff under the Bankruptcy 

Code, where a debtor to a NAFI is owed a refund from the IRS, the 

refund may be set off against a debt owed to the nonappropriated 

fund activity. In Re Hanssen, 203 B.R. 149 (Bankr. E.D. Ark. 1996). 

7. Nonappropriated Fund 

Activity Property

While a 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”, nonappropriated fund activities 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 nonappropriated fund 

instrumentality, owned and used equipment in its capacity as a 

government enterprise and may own and use property and 

equipment only in that capacity. 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.

In other cases involving their property, the courts have held that 

nonappropriated fund activities are departments or agencies 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. United States v. Towns, 842 F.2d 740 (4th Cir. 1988); United

States v. Sanders, 793 F.2d 107 (5th Cir. 1986). 
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8. Management of 

Nonappropriated Fund 

Activities

a. Regulation and Oversight Traditionally, since nonappropriated fund activities were generally 

created by agencies, those agencies also provided for their 

operations and carried out their oversight by regulation. As with 

other issues involving nonappropriated fund activities, the 

Department of Defense’s extensive regulations are the best 

examples of this process of administrative regulation and 

oversight.242 These regulations cover everything from the creation 

of nonappropriated fund activities, their purpose, funding, 

contracting, employment, audits, financial management, property 

management, to their dissolution. 

Congress has also approved regulations of nonappropriated fund 

activities, required specific departments to regulate such entities 

and imposed specific requirements by statute. For example, by 

Act of March 2, 1821, 3 Stat. 615, Congress approved the General 

Regulations for the Army which contained specific regulations 

regarding sutlers. Under 10 U.S.C. § 2783, the Secretary of Defense is 

required to establish regulations for nonappropriated fund 

instrumentalities 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 the Department of Defense and 

members of the armed forces. Under 10 U.S.C. § 136, Congress 

established the position of the Under Secretary of Defense for 

Personnel and Readiness who is to perform duties which include 

242See, for example: (1) Department of Defense Directive, Establishment 1015.1, 

Management, and Control of Nonappropriated Fund Instrumentalities, August 19, 

1981; (2) Department of Defense Directive 1015.8, DoD Civilian Employee Morale, 

Welfare, and Recreation Activities and Supporting Nonappropriated Fund 

Instrumentalities, October 22, 1985; (3) Financial Management Regulation DOD 

7000.14-R, Vol. 13, Nonappropriated Funds Policy and Procedures, August 1994; 

(4) Army Regulation 215-1, Nonappropriated Fund Instrumentalities and Morale, 

Welfare, and Recreation Activities, September 29, 1995; (5) Department of Defense 

Directive 1015.2, Military Morale, Welfare, and Recreation, June 14, 1995; Army 

Regulation 215-4, Morale, Welfare, and Recreation: Nonappropriated Fund 

Contracting, October 10, 1990. 
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exchange, commissary and nonappropriated fund activities. Under 

10 U.S.C. § 4779, 9779, Congress specified that no money 

appropriated for the support of the Army and the Air Force, 

respectively, may be spent for exchanges, but added that this does 

not prevent exchanges from using public buildings or public 

transportation that are not needed for other purposes. 

b. Authority to Audit NAFIs (1) GAO Jurisdiction

A 1975 law 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 government 

personnel and their dependents.243 Several questions came up 

regarding what type of NAFIs were covered under this authority. In 

an internal memorandum answering these questions, GAO made 

several points. B-167710-O.M., May 6, 1976. First, 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.” 

GAO pointed out that the 1974 Act listed the military and NASA 

exchanges and similar entities as examples of the types of NAFIs to 

be audited under this authority.244 Since GAO could not identify a 

workable definition of a NAFI, it relied on the case law and statutes 

dealing with NAFI operations to identify the applicable elements 

used for determining whether a particular activity is a NAFI.245

Under the 1975 Act, the Comptroller General may also audit the 

accounting systems and internal controls of NAFIs as well as 

243Pub. L. No. 93-604, § 301, 88 Stat. 1962 (1975), codified at 31 U.S.C. § 3525. 

244In the recodification of this provision in Pub. L. No. 97-258, 96 Stat. 963 (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. 

245These 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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internal or independent audits or reviews of those funds. 31 U.S.C. 

§ 3525(a)(1)-(3). In order 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 also 

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 also concluded that the Secretary of Defense was 

authorized by statute and regulations to require DOD internal 

auditors to audit NAFIs. B-148581.14-O.M., August 17, 1976. Military 

audit agencies or certified public accountants may audit NAFIs in 

accordance with DOD regulations and instructions. DOD Instruction 

No. 7600.6 (Audit of Nonappropriated Fund Instrumentalities and 

Related Activities); Army Regulation 

No. 215-1, para. 13-2.

(3) Settlement of Accounts

Under 31 U.S.C. § 3526 (formerly 31 U.S.C. §§ 71, 72, 74), the 

Comptroller General is authorized to adjust and settle the accounts 

of the United States Government and to certify balances in the 

accounts of accountable officers. Under its account 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 the General 

Accounting Office Act of 1974 provided GAO with audit authority 

over nonappropriated fund activities, it did not provide account 

settlement authority for them. B-183034, April 18, 1975; B-187004, 

August 12, 1976. In one case in which a bid protest decision was 

sought from GAO concerning a NAFI procurement, GAO replied that 

it could not consider the matter under its account settlement 

authority, but it would retain the correspondence for audit 

consideration. B-186542, June 17, 1976.
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(4) Bid Protests

Prior to the enactment of the Competition in Contracting Act,246

GAO’s account settlement authority was also the basis for its bid 

protest jurisdiction. 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, November 28, 1975. The fact that an agency 

labeled funds as nonappropriated was not determinative of whether 

GAO exercises jurisdiction over a bid protest. For example, 

57 Comp. Gen. 311 (1978) involved 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 had been advised that 

these funds were nonappropriated. Since its bid protest jurisdiction 

was based upon its authority to settle appropriated funds accounts, 

GAO dismissed the protest. B-188770, April 14, 1977. Upon 

reconsideration, GAO determined that the commissary surcharge 

funds were appropriated funds because Congress had authorized 

the collection of the surcharge and its use for commissary 

construction. 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. 57 Comp. Gen. 

at 313. Since these were in fact appropriated funds, GAO did have 

account settlement authority for the funds and bid protest 

jurisdiction for the protest. Id. at 315. 

Since the enactment of the Competition in Contracting Act, GAO’s 

jurisdiction over bid protests is no longer based upon its account 

settlement authority; rather it is limited to procurements by federal 

agencies as defined in the Federal Property and Administrative 

Services Act of 1949.247 The definition of federal agency includes an 

executive branch agency. 40 U.S.C. § 472(b). The definition of an 

executive branch agency includes any executive department or 

independent establishment, including wholly-owned government 

corporations. 40 U.S.C. § 472(a). However, it does not include 

24631 U.S.C. §§ 3551-3556.

24740 U.S.C. § 472.
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nonappropriated fund instrumentalities 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, February 6, 1996; 

B-228895, December 29, 1987. 

This does not mean that GAO will never consider a protest involving 

a procurement by a nonappropriated fund instrumentality. GAO will 

review a NAFI procurement where it finds that the NAFI is acting as 

a conduit for the federal agency to circumvent applicable 

procurement statutes. In 73 Comp. Gen. 213 (1994), GAO considered 

a protest concerning a procurement by an employees’ association, a 

nonappropriated fund instrumentality. The protester alleged that the 

agency was diverting its needs for procurement of vending machines 

to the NAFI in order to avoid applying procurement statutes and 

regulations. Id. at 215. However, the protester must show that the 

nonappropriated fund instrumentality is acting as a conduit for the 

agency in order to circumvent procurement statutes or GAO will 

decline to exercise its jurisdiction. B-270109, February 6, 1996. That 

GAO considers the protest upon that showing does not guarantee 

the protester’s success; the facts must support the allegation. In 73 

Comp. Gen. 213, GAO determined that the agency was not, in fact, 

diverting the procurement of vending machine services needed by 

the agency to the nonappropriated fund instrumentality and denied 

the protest. 

The fact that an agency will receive some incidental benefit from a 

NAFIs’ procurement does not confer bid protest jurisdiction on 

GAO. B-270109, February 6, 1996. In B-270109, the protester argued 

that GAO should consider its protest because government agencies 

were going to receive benefits from the services to be procured and, 

as such, their appropriations would be improperly augmented. GAO 

determined that even though government agencies were going to 

benefit to some extent from the services procured, that benefit was 

incidental to the fundamental purpose of the procurement which 

was to provide personal, unofficial telecommunications services 

arranged by the nonappropriated fund instrumentality. Id.

9. Sovereign Immunity As federal instrumentalities, nonappropriated fund activities are 

subject to and entitled to various duties and privileges of the federal 

government. One of these is the principle of sovereign immunity: 
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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 the States; a 

principle recognized by the Supreme Court in M’Culloch v.

Maryland, 17 U.S.(4 Wheat.) 316 (1819). This constitutional 

immunity extends to protect federal instrumentalities, including 

nonappropriated fund instrumentalities. 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 federal 

nonappropriated fund instrumentalities. United States v. State Tax

Commission of the State of Mississippi, 421 U.S. 599, 604-05 (1975). 

This is so even where that markup is not collected directly from the 

nonappropriated fund instrumentality, but is collected by suppliers. 

Id. at 608-09. 

The United States may consent to state taxation of its 

instrumentalities. Under the Hayden-Cartwright Act, 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. Under the Buck 

Amendment to the Hayden-Cartwright Act, Congress 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. 4 U.S.C. § 105-107.248 

b. Immunity From Suit Although nonappropriated fund activities are instrumentalities of 

the United States Government, the courts have traditionally held 

that suit will not lie against the United States to enforce NAFI 

contractual obligations. 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 (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 

248This 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. Castlen, supra note 224, at 11 n.69. 
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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 nonappropriated fund 

activities 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.” Id. at 877. 

The Court of Claims held that, under the Standard Oil decision,249

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 unfair result in this case was not lost on the Court of Claims. 

The fact that Mr. Borden did not have a suit against the Exchange 

Service, let alone the United States, was one thing; the fact that the 

Court of Claims found that Mr. Borden had not been negligent in 

connection with the loss was quite another. 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 extra-marital 

activity pleading that whatever he may have done was done in his individual 

capacity and not in his capacity as a husband.

“ . . . . 

“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 

249Standard Oil v. Johnson, 316 U.S. 481 (1942).
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subject to suit and liable for any breach of contract that had been duly signed by the 

Army Exchange Service.” Id. at 877-78.

Some civilian NAFIs have benefitted 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. Automatic Retailers v. Ruppert, 269 F. Supp. 

588 (S.D. Ia. 1967); Employees Welfare Committee v. Daws, 599 F.2d 

1375 (5th Cir. 1979).

In response to these decisions, Congress in 1970 amended the 

Tucker Act to waive sovereign immunity for claims arising from post 

exchange contracts. The amendment to the Tucker Act provided 

that express or implied contracts with the specified 

nonappropriated fund instrumentalities are considered express or 

implied contracts with the United States. Pub. L. No. 91-350, 84 Stat. 

449 (1970). However, that waiver of sovereign immunity only applied 

to the NAFIs specifically designated in the amendment to the Tucker 

Act.250 See McDonald’s Corp. v. United States, 926 F.2d 1126, 1132-

1133 (Fed. Cir. 1991); Denkler v. United States, 782 F.2d 1003, 1007 

(Fed. Cir. 1986); Hopkins v. United States, 513 F.2d 1360, 1363 (Ct. Cl. 

1975). See also Research Triangle v. Board of Governors of the

Federal Reserve System, 962 F. Supp. 61 (M.D.N.C. 1997); Wolverine

Supply, Inc. v. United States, 17 Cl.Ct. 190 (1989). The purpose of the 

amendment was to afford contractors a federal forum in which to 

sue nonappropriated fund instrumentalities by “doing away with the 

inequitable ’loophole’ in the Tucker Act.” United States v. Hopkins, 

427 U.S. 123, 126 (1976). 

c. Payment of Judgments Assuming a party overcomes the jurisdictional barriers to suing a 

NAFI and prevails in the action, who pays the judgment? One of the 

most commonly cited principles regarding NAFIs is that the United 

250As originally proposed, the amendment would have applied to all 

nonappropriated fund activities. It was changed to include only contracts of certain 

Department of Defense and other nonappropriated fund activities specifically 

named in the amendment. 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. Congress decided to include only those 

military activities which would have sufficient assets to pay costs resulting from the 

expanded jurisdiction. H.R. Rep. No. 91-933, at 6-7 (1970), reprinted in

1970 U.S.C.C.A.N. 3477, 3482. 
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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. This topic is covered in detail in 

chapter 14 of this work so we will only summarize the highlights 

here. 

NAFIs generally pay tort judgments against them from 

nonappropriated 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, September 29, 

1981. See also Mignogna v. Sair Aviation, Inc., 937 F.2d 37 (2nd Cir. 

1991).

Contract judgments on express or implied contracts by the NAFIs 

covered in the Tucker Act are paid initially from the Judgment Fund, 

which is then reimbursed by the contracting activity, i.e., the NAFI. 

31 U.S.C. § 1304(c). The Tucker Act and the applicable provisions of 

the Judgment Fund only apply to the specified NAFIs, not other 

nonappropriated fund activities. Swiff-Train Co. v. United States, 

443 F.2d 1140 (5th Cir. 1971).

10. Status of 

Nonappropriated Fund 

Activity Employees

Nonappropriated fund activities pay their employees primarily from 

income generated by the activities themselves. Perez v. AAFES, 

680 F.2d 779, 780 (D.C. Cir. 1982). Employees of nonappropriated 

fund activities are neither employees of federal agencies, nor 

employees of the United States Government. Rather, they are 

employees of the instrumentality. United States v. Hopkins, 427 U.S. 

123, 127 (1976). Congress never intended that nonappropriated fund 

activity employees receive the same level of protection as other 

federal employees. McAuliffe v. Rice, 966 F.2d 979, 980 (5th Cir. 

1992). When Congress passed the Act of June 19, 1952, Ch. 444, § 1, 

Pub. L. No. 82-397, 66 Stat. 138, Congress acceded to the Department 

of Defense’s desire to make civilian employment of nonappropriated 

fund activities as flexible as possible and not subject to then existing 

Civil Service type protections. The 1952 Act provided that 

employees of nonappropriated fund activities “shall not be held and 

considered as employees of the United States for the purpose of any 
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laws administered by the Civil Service Commission.”251 Id. Where 

Congress has made nonappropriated fund activity 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, 680 F.2d at 787. 

a. Applicability of Civil Service 

Laws

Nonappropriated fund 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 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. 

251The 1952 Act is recodified at 5 U.S.C. § 2105(c) and incorporated within the Civil 

Service Reform Act of 1978.
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(1) Civil Service Reform Act of 1978

The Civil Service Reform Act of 1978 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 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.252 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. 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.

Congress deliberately exempted nonappropriated fund activity 

employees from federal civil service rules. This enabled the armed 

forces to carry out the missions of nonappropriated fund activities 

with the maximum possible personnel flexibility. McAuliffe, 966 F.2d 

at 981. With a few exceptions, nonappropriated fund activity 

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 980-981; Perez v. AAFES, 680 F.2d 779 (1982). 

See 5 U.S.C. § 2105(c). Thus, the remedies available to 

nonappropriated fund activity employees are established by 

regulation of the agency employing them. See McAuliffe, 966 F.2d 

at 981; Castella v. Long, 701 F. Supp. 578 (N.D. Tex. 1988). 

Accordingly, nonappropriated fund activity 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 a nonappropriated fund activity sought review of the 

decision to terminate her employment under the Administrative 

252For a detailed discussion of the Civil Service Reform Act, see United States v.

Fausto, 484 U.S. at 443-47.
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Procedure Act, 5 U.S.C. § 701 et seq. The court held that the 

exclusivity of the Civil Service Reform Act precluded judicial review 

under the Administrative Procedure Act.253 966 F.2d 979.

Since they are not covered by the Civil Service Reform Act, 

nonappropriated fund activity employees have attempted to 

challenge actions taken against them through other statutory and 

constitutional rights. These include invoking Tucker Act jurisdiction 

for certain nonappropriated fund activity contracts, and seeking 

damages for constitutional deprivations by a government official, as 

established in Bivens v. Six Unknown 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. 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. Id. at 126; AAFES v. Sheehan, 

456 U.S. 728, 735 (1982). Relying on this theory, nonappropriated 

fund activity employees sued their employers alleging that they were 

employed by contract. Sheehan, 456 U.S. 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 were not, in fact, serving under employment contracts 

but had been appointed to their positions. Consequently, the courts 

lacked jurisdiction over their claims. Sheehan, 456 U.S. at 736-37; 

Moore, 21 Cl. Ct. at 539-40; Orona, 4 Cl. Ct. at 84. 

Feeling confused about NAFI’s? 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. 1988), a former AAFES254 employee sued for damages after he 

253But 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 a 

nonappropriated fund instrumentality employee 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. 

254Army and Air Force Exchange Service.
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was fired for making false claims for travel expense 

reimbursements. The court recognized that AAFES is a NAFI and 

not technically part of the Government. Thus, 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

capacities,

255 based on Bush v. Lucas, 462 U.S. 367 (1983). See 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. 462 U.S. at 388. 

The Castella court realized that Bush involved federal employees 

subject to the Civil Service System, not NAFI employees. Castella, 

701 F. Supp. at 583. (As we noted earlier, Congress intentionally 

exempted NAFI employees from that system.) Nevertheless, it 

noted that some other courts (including its own circuit court) had 

applied (or endorsed applying) Bush to 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 disrupted by Bivens-style constitutional claims. Castella, 

701 F. Supp. at 584.

In other words, by setting up a comprehensive regulation, the Army, 

Air Force, and AAFES were able to preclude a claimant from 

pursuing constitutional claims! Strange as it may seem, by treating 

255In 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. 

403 U.S. 488. The Bivens remedy, it should be noted, runs against the offending 

official in his private capacity, not against the government. See chapter 14, 

“Payment of Judgments,” supra at 14-21 and 14-23.
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NAFI employees the same as federal employees under Bush, the 

courts may actually have reinforced the congressional intention that 

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 nonappropriated fund activity 

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. 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 federal agency decisions. The court 

found that the plaintiff was really alleging only a wrongful personnel 

decision. Id. at 584-585.

(2) Other Employment Related Laws

The following canvass of laws typically associated with federal 

employment discusses their applicability to NAFIs. 

Whistleblower Protection Act—Nonappropriated fund activity 

employees are not protected by the Whistleblower Protection Act 

because they are excluded from the definition of employee for 

purposes of Title 5. Clark v. Army and Air Force Exchange Service, 

57 M.S.P.R. 43 (1993). However, under 10 U.S.C. § 1587, 

nonappropriated fund activity employees are protected from 

reprisal for whistleblowing pursuant to procedures adopted by the 

Secretary of Defense. 

Classification and Pay Rates and Systems—As stated in section 

2105(c), nonappropriated fund activity employees are federal 

employees for purposes of section 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 and the systematic agency review of operations. 

Fair Labor Standards Act of 1938—Nonappropriated fund activity 

employees under the jurisdiction of the Armed Forces fall within the 

coverage of the Fair Labor Standards Act of 1938. 29 U.S.C. 
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§ 203(e)(2)(A)(iv). Unlike federal employees in the competitive or 

excepted service, nonappropriated fund activity employees are 

under another personnel system pursuant to 5 U.S.C. § 2105(c). 

Since nonappropriated fund activity 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 NAFI. AFES

and AFGE, Region Council 236, 33 F.L.R.A. 815, 817-18 (1988). A 

claim may be brought against a NAFI since the Government has 

waived immunity with regard to wage claims under the FLSA. 

Cosme Nieves v. Deshler, 786 F.2d 445, 450 (1st Cir. 1986) (a 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 1993—Nonappropriated fund 

activity employees are federal employees for purposes of Title II of 

the Family and Medical Leave Act of 1993. 5 U.S.C. § 2105(c). Title II 

of the Family Medical Leave Act grants federal employees, including 

nonappropriated fund 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 nonappropriated fund activity. Id. at 38. 

Civil Service Retirement Act—The Civil Service Retirement Act, 

5 U.S.C. §§ 8331 - 8351, 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 five years of “creditable” civilian 

service and must complete at least one year of “covered” civilian 

service in the final two 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 a 

nonappropriated fund activity is not, as a general rule, creditable 

service for purposes of the Civil Service Retirement Act. 

Nonappropriated fund activity 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 
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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 a nonappropriated fund activity 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 (1986), codified at 5 U.S.C. 

§ 8332(b)(16), provides that the following service is creditable:

“service 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, nonappropriated fund activity 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 a 

nonappropriated fund activity 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, supra at 1128. In the 

Dupo case, the Federal Circuit found that Mr. Dupo was employed 

by a nonappropriated fund activity for the time periods required for 

creditable service. 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. 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 
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transfers are within this coverage. Nonappropriated fund activities 

are not considered federal agencies for the purpose of receipt and 

disbursement of funds, including payments to their employees. 

B-215398, October 30, 1984. Employees of a nonappropriated fund 

activity are not employed by an “agency” within the meaning of 

section 5721(1) and are not entitled to relocation expenses under 

section 5724 and 5724a when they transfer to a federal agency. Id. 

However, when they transfer to positions in the DOD or Coast 

Guard, employees of DOD or Coast Guard NAFIs are authorized 

travel, transportation and relocation expenses under the same 

conditions and to the same extent authorized for transferred 

employees. 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 State Government or if his retired pay together with his 

civilian pay exceeded level V of the Executive Schedule. 5 U.S.C. 

§§ 5531, 5532.256 In this, “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 retired regular officers of the 

armed forces who are employed with Department of Defense 

nonappropriated fund activities was subject to reduction in order to 

avert dual compensation. 

There are nonappropriated fund activities outside the Department of 

Defense that employ retired officers of the armed forces and the 

256Section 5532 was repealed, effective October 1, 1999. Pub. L. No. 106-65, Div. A, 

tit, VI, § 656 (a) (1), 113 Stat. 664 (October 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—in their own right, and in their usefulness in determining whether 

and when an entity is a NAFI or not.
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courts have considered the applicability of the dual compensation 

laws to them. In Denkler v. 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 nonappropriated 

fund activities such as the Federal Reserve Board. 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 nonappropriated fund activities of the armed forces 

and the court would not legislate in its stead. Id. at 1008. Thus, in the 

Denkler case, employment with the Federal Reserve Board, a 

nonappropriated fund instrumentality not under the jurisdiction of 

the armed forces, was not a position under the dual compensation 

principles.

GAO followed the Denkler decision in 67 Comp. Gen. 437 (1988) in a 

case involving three retired military officers who were employed by 

the Federal Reserve System (FRS). GAO deferred to the weight of 

judicial opinion holding that the FRS was a nonappropriated fund 

instrumentality 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 nonappropriated fund instrumentality. 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. See also

B-236979, April 19, 1990 (since its funds are collected by the 

Commission and deposited into a revolving fund in the Treasury and 

withdrawn from the fund pursuant to appropriation acts, Panama 

Canal Commission is not a nonappropriated fund activity and its 

employees are subject to the dual compensation reductions).

Title VII of the Civil Rights Act and Age Discrimination In

Employment Act—Nonappropriated fund employees are entitled to 

maintain actions under Title VII of the Civil Rights Act. 42 U.S.C. 

§ 2000e-16(a). See B-234746-O.M., March 10, 1989. Nonappropriated 

fund employees are entitled to maintain actions under the Age 
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Discrimination 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 AAFES) is the Secretary of Defense or the 

Secretary of the Air 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—Nonappropriated 

fund activity employees have been considered as employees of the 

United States for other purposes. For example, the Office of Legal 

Counsel of the Department of Justice considered whether 

nonappropriated fund activity employees were considered 

employees of the United States under the Immigration and 

Nationality Act. 1 U.S. Op. Off. Legal Counsel 258 (1977). 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. The Office of Legal Counsel concluded that the Act of 

June 19, 1952, which we discussed above, demonstrated that 

Congress assumed that in the absence of an express statutory 

exclusion, nonappropriated fund activity employees were regarded 

as employees of the United States. The Office of Legal Counsel 

stated that as a general rule, nonappropriated fund activity 

employees should be regarded as employees of the United States 

unless a Federal statute provides otherwise. 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’ primary intention was to facilitate 

the immigration of persons serving the Government abroad and 

nonappropriated fund activity employees were not excluded, they 

were eligible for classification as special immigrants under the Act.

Criminal Statutes—Since nonappropriated fund employees are not 

federal employees for many purposes, several employees tried to 

use this as a defense when charged with bribery under a federal 

statute. Harlow v. United States, 301 F.2d 361 (5th Cir. 1962). 

Mr. Harlow and his co-conspirators were employed by the European 

Exchange System, a nonappropriated fund activity. They were 

responsible for contracting for the exchange. They established 
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various Swiss bank accounts, solicited bribes from vendors seeking 

to do business with the exchange, and deposited the bribes into 

those accounts. In appealing their convictions for corruption, the 

defendants argued that, as nonappropriated fund 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 defendants could be 

included under the term “person acting for or on behalf of the 

United States.” The court reasoned that nonappropriated fund 

activities are instrumentalities of the United States Government and 

the employees, acting on behalf of the exchange 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 

nonappropriated fund instrumentalities, courts in certain instances 

have interpreted the FTCA’s coverage to include certain NAFIs that 

the courts consider to be federal instrumentalities. See, e.g., Brucker

v. United States, 338 F.2d 427 (9th Cir. 1964) (military flying club); 

United States v. Hainline, 315 F.2d 153, (10th Cir. 1963) (military 

flying club); United States v. Holcombe, 277 F.2d 143 (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). 

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 and the Feres Doctrine bars 

recovery under the FTCA. Pringle v. United States, 44 F.

Supp.2d 1168 (D. Kan. 1999); Eckles v. United States, 471 F. Supp. 

108 (M.D. Pa. 1979) and cases cited therein.

However, injuries to employees of NAFIs arising in the course of 

employment are covered under the Longshoremen’s and Harbor 
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Workers’ Compensation Act (33 U.S.C. Ch. 18, see 5 U.S.C. § 8173), 

and not the Federal Employees Compensation Act or the FTCA. 

Traywick v. Juhola, 922 F.2d 786 (11th Cir. 1991); Vilanova v. United

States, 851 F.2d 1 (1st Cir. 1988). 

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 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 

six-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 
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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 role and responsibilities of “trustee” for 

private funds.257 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. 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. 

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 

257See Smithsonian Legacy, National Intelligencer, May 2, 1836 (congressional 

debates focused on whether sovereign governments can accept funds in trust), 

reproduced in “From Smithson to Smithsonian,” 

http://www.sil.si.edu/Exhibitions/Smithson-to-Smithsonian/labels/027_high.html
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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 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.” Cf., e.g., United States v. Mitchell, 

463 U.S. 206, 225 (1983) (discussed below). As the court observed in 

Cobell v. Norton, 240 F.3d 1081, 2001 WL 173299, at *19 (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.”

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 small. 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 Circ. No. A-11, § 20.11(c) (1999) (2d paragraph). 

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-à-vis the trust corpus, than the law actually recognizes.

1. Federal Funds and Trust 

Funds

The federal government holds funds in over 1,000 accounts. Budget

Account Structure: A Descriptive Overview, GAO/AIMD-95-179 

(September 1995). At the highest level of generality, these accounts 
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are divided into two258 major groups: federal funds and trust funds. 

OMB Circ. No. A-34, Instructions on Budget Execution, § 11.13(c)(2) 

(October 1999). 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. Id. Of these accounts only the general fund receipt 

accounts are used to account for collections that are not earmarked 

by law for a specific purpose. Budget Issues: Earmarking in the

Federal Government, GAO/AIMD-95-216FS (August 1995). 

Public enterprise revolving funds and special funds also are 

financed by earmarked receipts. Public enterprise revolving funds 

are credited with receipts generated by a cycle of business-type 

operations with the public. A Glossary of Terms Used in the Federal

Budget Process: Exposure Draft, GAO/AFMD-2.1.1, at 5 (Rev. 

January 1993). 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 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 Circ. No. A-11, §§ 20.3, 20.11 (1999). 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 designate them as trust funds.259 

Budget Issues: Earmarking in the Federal Government, GAO/AIMD95-216FS (August 1995). 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 

258Compare 1 T.F.M. 2-1520, November 16, 1999, which breaks down the accounts 

into three classifications: general funds, trust funds and special funds.

259The 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).
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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.260 OMB Circ. No. A-34, § 11.13(c)(2) (October 1999). 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 and receipt 

accounts are nonrevolving.261 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. I T.F.M. 2-1520 (November 

16, 1999). See also GAO, Policy and Procedures Manual for 

Guidance of Federal Agencies, title II, § 2.2. These include 

non-revolving accounts finance programs such as the Social 

Security and Medicare programs.262 

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 business-type 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 

260See Federal Trust and other Earmarked Funds, GAO-01-199SP (January 2001), for 

a discussion of the composition of trusts and other earmarked funds, including 

their treatment in the federal budget process.

261In other words, money deposited in, or spent from, these accounts generally may 

not be removed or replenished, respectively, without further legal authority. (See 

the general discussion of revolving funds in chapter 6, supra, at 6-130.)

262The Social Security and Medicare programs are funded out of two trust funds 

each—the Federal Old-Age and Survivors Insurance Trust Fund and the Federal 

Disability Trust Fund, and the Federal Supplementary Medical Insurance Trust 

Fund and the Federal Hospital Insurance Trust Fund, respectively. 42 U.S.C. §§ 405, 

1395ii.
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provided to inmates by the federal 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). 

Data reported by the Congressional Research Service (CRS) 

indicated that there were 110 federal trust funds in fiscal year 1997. 

CRS, Federal Trust Funds: How Many, How Big, and What Are They

For (updated June 30, 1998) (hereafter Federal Trust Funds). The 

number is small because a number of related funds were grouped 

together for reporting purposes. See also Trust Funds and Their

Relationship to the Federal Budget, GAO/AFMD-88-55 (September 

1988). Whatever the absolute number of trust funds held by the 

government, for fiscal year 1997, CRS reported that the 110 trust 

funds accounted for 38 percent of the federal government’s receipts. 

Federal Trust Funds, supra. Of these, 15 accounted for 99 percent of 

the aggregate balances of all trust funds. This should not come as a 

surprise, considering that the Social Security Trust Funds and the 

Civil Service Retirement and Disability Trust Fund accounted for 

69 percent of the aggregate trust fund balances and held 20 percent 

of the aggregate debt of the government. Id. 

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.263 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. Budget

Issues: Trust Funds and Their Relationship to the Federal Budget, 

GAO/AFMD-88-55 (September 1988). 

263“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 (Holt Rinehart, and Winston, 1961) 

(1871).
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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 are 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 (Second) of Trusts, § 2 (1959). 

Clearly, the United States can act as a trustee. E.g., 1995 O.L.C. 

LEXIS 18 (May 22, 1995) (“[A]s sovereign, the United States has the 

capacity to act as a common law trustee.”) (citing 2 Scott’s Law of 

Trust and Trustees § 95 (4th ed. 1987)). 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 (1980), reh’g denied, 446 U.S. 

992 (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. 

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 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 
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fiduciary responsibilities as to the management of allotted lands.” 

Id. at 542. Absent such responsibilities, the United States was not 

answerable for damages. Id. “[A]ny 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 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 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, 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. 

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, 2001 WL 173299 at *1 (D.C. Cir. 2001). 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 doesn’t know how many accounts it 
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is responsible for, is uncertain of the balances in them, and lacks the 

records necessary to determine that information. See, e.g., Financial

Management: Status of BIA’s Efforts to Reconcile Indian Trust Fund

Accounts and Implement Management Improvements, 

GAO/T-AIMD-94-99 (1994); Financial Management: BIA’s

Management of the Indian Trust Funds, GAO/T-AIMD-93-4 (1993). 

The claimants in Cobell v. Norton brought a class action for 

injunctive relief and damages. (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 into 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, 2001 WL 

173299, at *1-*4. 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. 

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 *17-*19. 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 *20-*23. The 

circuit court agreed it had been, and affirmed and remanded the 

matter to the district court. Id. at *29.

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 invest264 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 obligations of the United 

264For more on a trustee’s “duty to invest,” see chapter 17(d)(4), below.
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States in the management of Indian resources.265 For the period at 

issue in Fors v. United States, 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 to 90 days after a determination of death. Id.

The Department of Veterans Affairs “personal funds of patients” 

trust fund, discussed earlier in chapter 9, 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 Attorney General has applied a Mitchell II analysis with respect 

to moneys contained in inmates’ Prisoners’ Trust Accounts. Op. Off. 

Legal Counsel, Fiduciary Obligations Regarding Bureau of Prisons

Commissary Fund, 1995 O.L.C. LEXIS 18 (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, 1934, ch. 756, 48 Stat. 1224, 

Congress classified the Prisoners’ Trust Fund (and the related 

Commissary Fund discussed below) as a “trust fund” and provided a 

permanent appropriation to disburse money from the fund in 

compliance with the terms of the trust. See 31 U.S.C. §§ 1321(a)(21), 

1321(b).

The Office of Legal Counsel (OLC) found the 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 

265See also Hohri v. United States, 782 F.2d 227, 243 (D.C. Cir. 1986) (neither narrow 

regulatory obligations or alleged contractual commitments impose fiduciary 

obligations on United States with respect to Japanese-American internees during 

World War II), vacated and remanded on jurisdictional grounds, United States v.

Hohri, 482 U.S. 64 (1987); 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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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 their relationship to the Prisoners’ 

Trust Funds as a fiduciary one.266

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 augment 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. 

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 

266There can be no doubt that the government has fiduciary obligations with respect 

to the Prisoners Trust Fund and VA Patient Funds mention above. Yet, we wonder: 

Do those funds really constitute “trust” or “bailments”? Cf. B-153479, April 15, 1964 

(re: Prisoners Trust Fund). As OLC observed, fiduciary relations can arise in many 

different contexts. This is important because, as OLC also observed, quoting 

Restatement (Second) of Trusts § 2, comment b, at 7 (1959), “[t]he duties of a 

trustee are more intensive than the duties of some other fiduciaries.” For one thing, 

no one has held—so far—that the government has a duty to invest those funds and 

make them productive. See chapter 17(D)(4), supra. Cf. note 6 and related text, 

supra.
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and profits realized as a result of a breach of trust. 5 U.S.C. 

§ 8477(e).267

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, 

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, 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. 118 F.2d at 21 (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 

267Given 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 Budget of the

United States Government, Fiscal Year 2001: Analytical Perspectives, 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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dismissing the case for 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 proceeding 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 chapters 6(E)(2)(h) and 9(B)(3)(d) above, 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, et al. v. United States, 

186 F.2d 900 (9th Cir. 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. 1945), cert. denied, 

325 U.S. 882 (1945), 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 co-operative 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 
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in its custody,268 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 White

House: Travel Office Operations GAO/GGD-94-132, App. I: 1.5 (May 

1994) (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, January 23, 1997. Most federal trust funds are trust funds 

simply because Congress says so, or, euphemistically, because the 

268A bailment is a “species” of trust. 8 C.J.S. Bailments 2 (1988). 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 § 13 (1988). 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. 8 C.J.S. Bailments § 48 (1988). As “one who holds 

a thing in trust for another,” 36A C.J.S. Fiduciary (1961), a bailee qualifies generally 

as a “fiduciary.” Though not treated as fiduciaries for all purposes, bailees have 

long been included within “the more general class of fiduciaries.” 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 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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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 program legislation as a “trust fund.” See 

the Trust Fund Code of 1981, 26 U.S.C. Subtitle I, 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) (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 National Ass’n of Counties v. 

Baker, 669 F. Supp. 518 (D.D.C. 1987), cert. denied National Ass’n of

Counties v. Brady, 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 the Gramm–

Rudman–Hollings Act, Pub. L. No. 99-177, 99 Stat. 1038 (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. 

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 Mitchell I. Id. at 375. Congress created the Revenue Sharing 
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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 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 v. Baker, 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. Op. Off. Legal Counsel, 

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, 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. Donated Funds As noted earlier in this publication, a number of departments and 

agencies have specific statutory authority to accept gifts. (See 

section E, 3(a) in chapter 6). 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, 

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 
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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”).

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.269 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 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 creation of 

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 

269Cf. 4 First Comp. Dec. 457, 458 (1883) (“The Government cannot, without its 

authorized express consent, be forced to occupy the position of a trustee.”), citing

United States V. Morris, 23 U.S. (10 Wheat.) 246, 303 (1825).
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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.

3. Application of Fiscal 

Laws

a. Permanent Appropriation 

Repeal Act, 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 the Congress. The 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, 1934, ch. 756, 48 Stat. 1233 (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. Rep. No. 73-2039, at 6 (1934) (conference report). See

B-226801, May 4, 1988 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). 
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b. Available Uses of Trust Funds (1) 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. 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).) 

Appropriated funds are subject to many use restrictions. (See 

chapter 6 below.) 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 also 36 Comp. Gen. 771 (1957); 46 Comp. Gen. 379 (1966) 

(although funds appropriated directly to the National Science 

Foundation were not available for conference expenses, donated 

funds were); B-131278, September 9, 1957; B-135255, March 21, 1958; 

B-170938, October 30, 1972. While all the restrictions on the use of 

appropriated funds may not apply, donated funds are available only 

for use in furtherance of authorized agency purposes consistent 

with the terms of the trust. B-195492, March 18, 1980.

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, the Act of July 10, 1935, 

sec. 2, 49 Stat. 477, was silent on this point. The act 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 
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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, January 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 the ACIR to give continuing attention to 

intergovernmental problems. To finance its activities, Congress 

authorized ACIR to solicit and receive contributions from, among 

others, state governments. In 1995, Congress terminated ACIR 

effective September 30, 1996. 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.

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 (1944) and B-274855, January 23, 

1997. In 55 Comp. Gen. 1059 (1976), we 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.
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We also have considered whether a trust fund could be used for 

expenses that the Comptroller General has traditionally viewed as 

personal. In 47 Comp. Gen. 314 (1967), we 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. 

Trust funds are no more available for personal expenditures than 

appropriated funds.

While the rule seems simple enough, complexity appears in its 

application. In B-195492, March 18, 1980, Senator Proxmire 

questioned Interior’s use of amounts held in its Cooperating 

Association Fund, established by 16 U.S.C. § 6 (1994), for contest 

entry fees, receptions for VIP guests, gifts and refreshments. While 

we reiterated that trust funds are not available for personal 

expenses, we noted that the strictures on the use of trust funds do 

not mirror those applicable to the use of appropriated funds. With 

respect to the “’entertainment,’ ’gifts,’ and other so called ’personal’ 

items,” we 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 trust funds as incident to the terms of the trust for 

what would otherwise be viewed as an improper personal use of 

general agency appropriations, we would not object. On the other 

hand, we 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, April 1, 1943, we 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. We 

did not object to these expenditures since Congress had 
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appropriated the funds to be used for the benefit of 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, 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, October 7, 

1986. One issue addressed by the decision was PBGC’s authority to 

modify to a contingent fee arrangement the fee provision of an 

existing contract with outside litigation counsel. 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, we could find no legal or public policy 

considerations which precluded PBGC’s modifications of its 

contracts with outside counsel. 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 
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relevant in prescribing the range of uses to which an agency may 

agree, it is the donor’s action in making a restricted gift, i.e., one for 

designated purposes, that controls the particular use.270

Where the corpus of the trust account consists of dedicated tax 

receipts, the rationale for the rule is a function of Congress’ 

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 the Purpose Statute, 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 examples of Congress changing the 

uses of a statutory trust fund filled with tax revenues, see the 

legislative history recounted in B-289779, February 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, September 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, 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. We 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 trust funds were involved, the Department would have had 

270An 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, 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). This argument may go too far given the 

language of 31 U.S.C. § 1323 providing that “[d]onations . . . shall be deposited in the 

Treasury as trust funds and are appropriated for disbursement under the terms of 

the trusts . . . .” 
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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, 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). (See earlier discussion 

in Chapter 12, Section D, Interagency Claims.) 

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, August 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 
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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 

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 instrument landing 

system. 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 of this publication) 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, April 23, 1952, GAO reviewed a 

Commerce Department 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, September 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 affect 

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 non-trust 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-236940, October 17, 1989. This is particularly true where (as in the 
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immediately preceding decision) the adjustment would result in 

additional budget authority being available to an agency.

In B-275490, December 5, 1996, we 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 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 earlier discussion of restoration in Chapter 9, section 

H.2., Restoration.
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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 at 

section E.2h. 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), we concluded 

that 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, March 18, 1980, we found no 

elements of an exchange and accordingly held that payments by 

nonprofit associations operating in national parks of one-half of one 

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 62 Comp. 
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Gen. 379 (1983); B-200170, April 1, 1981; 63 Comp. Gen. 189 (1984); 

B-210176, October 4, 1984.) 

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, 

August 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, 

October 11, 1951 (recoveries for lost or damaged property financed 

from Federal Old-Age and Survivors Insurance Trust Fund are 

creditable to the trust fund). 

One decision applying “time” concepts to a statutory trust fund 

reached a predictable result. In B-171277, April 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 multi-year 

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 no-year 

funds and multi-year 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 (1990). 

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:
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“[T]here 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 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 also B-272979, August 23, 1996, 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”); and B-241592.3, December 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 “Except 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 to be invested. It is 

not an independent authorization for the payment of interest. 

B-241592.3, December 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, sec. 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. 

United States v. Alcea Band of Tillamooks, 341 U.S. 48 (1951) 

(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); 
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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)). 

See also the general discussion of the No-Interest Rule in chapter 12 

above.

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, August 23, 1996; B-243029, 

March 25, 1991; B-108439, December 28, 1973; B-126459, February 

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, April 13, 1978. 

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 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.271 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 

271Cf. B-153479, April 15, 1964 (prisoners’“ trust funds).
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effect is 67 Comp. Gen. 342 (1988) (use of Bureau of Indian Affairs 

operating appropriation to adjust deficiency in BIA trust fund). 

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, January 23, 1981. If a trustee commits a breach 

of trust, the trustee is chargeable with any loss resulting from that 

breach. B-248715, January 13, 1993. See generally United States v.

Mitchell, 463 U.S. 206, 226 (1983); Confederated Salish and Kootenai

Tribes of Flathead Reservation, Montana v. United States, 175 Ct. 

Cl. 451 (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:

“[T]he 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 (1875) (court can 

summarily compel restitution of funds improperly withdrawn from 

registry account by former officers). 

Other situations involving accountability for funds held in trust or 

trust-like circumstances include: 

• VA patient funds: 68 Comp. Gen. 371 (1989); B-226911, 

October 19, 1987; B-221447, April 2, 1986; B-215477, November 5, 

1984; B-208888, September 28, 1984.

• Erroneous payment to Individual Indian Money Account: 

65 Comp. Gen. 533 (1986).

• Registry accounts of courts of the United States: 64 Comp. 

Gen. 535 (1985); 63 Comp. Gen. 489, 490 n.1 (1983); B-198558, 

B-200108, January 23, 1981.

• United States Naval Academy laundry fund: 17 Comp. Gen. 786 

(1938)
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• Prisoners’ money held in Brig Officer’s Safekeeping Fund: 

B-248715, January 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, April 3, 1991; 

• Foreign currencies accepted in connection with accommodation 

exchanges: B-190205, November 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 IRS levy and the fact 

that the postmaster held the deposits as a trust fund does not 

protect them from levy. Similarly, in B-165138, March 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. 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, April 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) (strict moral obligations of 
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United States in dealing with Indians require United States to absorb 

the loss for moneys erroneously paid from an Individual Indian 

Money account and forego collection from the erroneous payee—

another Indian). 

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 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). 

Subsection 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 T.F.M. 6-3000. (See also, Chapter 12, 

above, Section J, Unclaimed Money/Property.) 

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 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, November 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 and Trustees, 951 (2nd 

Ed. 1983). 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, November 26, 1985; 

B-155963, March 19, 1965 (special deposit account for the proceeds 

of withheld foreign checks); B-139963, July 6, 1959 (soldiers’ deposit 

savings accounts); and B-103575, August 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 Unclaimed Money: Proposals for
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Transferring Unclaimed Funds to States, GAO/AFMD-89-44, at 10 

(May 1989).

8. Federal Trust Funds and 

the Budget

As suggested earlier, many of the federal trust funds are 

bookkeeping devices to capture receipts earmarked for certain 

programs or purposes. 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, i.e., debt held by a government 

account.272 To the extent that the receipts credited to a trust fund 

(that is, 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, Social Security

Financing, GAO/AIMD/HEHS-98-74, at 29 (April 1998). Congress 

created the Social Security program in 1935 in response to the 

economic deprivations of the Depression. Originally created as a 

benefit system for retired workers, over time, Congress has 

expanded Social Security to insure disabled workers and the 

families of retired, disabled, and deceased workers. Social Security:

Different Approaches for Addressing Program Solvency, 

GAO/HEHS-98-33, at 4 (July 1998). 

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. Congress has provided a permanent indefinite 

272Debt held by the government, about $1.8 trillion at the end of 1998, primarily 

reflects debt owned by federal trust funds, such as the Social Security trust funds. 

Federal Debt: Answers to Frequently Asked Questions—An Update, 

GAO/AIMD-99-87, at 5 (May 1999). 
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appropriation from the general fund of the Treasury to the 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 the Trust Funds, the Commissioner of Social Security is 

to certify the amount of wages (or self- employment income) 

reported to IRS. Id. See B-261522, September 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.

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) 

(1994), designating the Secretary of Treasury as trustee, 26 U.S.C. 

§ 9602(a).273 Congress has provided the fund with a permanent 

indefinite appropriation of amounts received in the Treasury from 

273The Highway Trust Fund actually contains two accounts. The oldest and most 

well-known of the two accounts is the highway account. The other, more recent 

account is the Mass Transit Account. 26 U.S.C. § 9503(e).
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certain gasoline, diesel fuel, and other excise taxes paid by highway 

users. 26 U.S.C. § 9503(b). (In fiscal year 1996, these earmarked 

revenues brought in $24.7 billion to the fund. Dept. of 

Transportation, Highway Trust Fund Primer (January 1999).) The 

Secretary of the Treasury is responsible for holding the 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, December 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).274 

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 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. 

274For more information on the history and operation of the Highway Trust Fund, 

see CRS, Federal Excise Taxes on Gasoline and the Highway Trust Fund: A Short

History, No. 96-394 (May 3, 1996); Highway Trust Fund: Condition and Outlook for

the Highway Account, GAO/RCED-89-136 (May 1989); Highway Trust Fund: 

Revenue Sources, Uses, and Spending Controls, GAO/RCED-92-48FS (October 

1991); Highway Trust Fund: Strategies for Safeguarding Highway Financing, 

GAO/RCED-92-245 (September 1992); and Transportation Trust Funds, 

GAO/AIMD-95-95R (March 1995).
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In other words, whether they should be “off budget.”275 Since fiscal 

year 1969 the President has submitted a unified budget that covers 

both trust and non-trust fund activities. The unified budget merges 

trust and non-trust 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.” Statement of 

Charles A. Bowsher, Comptroller General of the United States, The

Budget Treatment of Trust Funds, GAO/T-AFMD-90-3, at 5, before 

the Subcommittee on Legislation and National Security, Committee 

on Government Operations, House of Representatives (October 

1989) (hereafter Bowsher Testimony). In other words, the trust fund 

surpluses disguise the severity of the deficit (or the amount of 

surplus) on the non-trust 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 lower the deficit. Budget Issues: 

Trust Funds and their Relationship to the Federal Budget, 

GAO/AFMD 88-55, at 4, (September 30, 1988). 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. 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. Budget Issues: Trust Funds in the Budget, 

GAO/T-AIMD-99-110, at 1 (March 9, 1999).

275A loose definition of “off budget” is the exclusion of receipts and disbursements 

from consideration as part of the budget. 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, Transportation Trust 

Funds: Budgetary Treatment, No. 98-63 (April 1998) and Social Security and the 

Federal Budget: What Does Social Security’s Being “Off Budget” Mean?, No. 98-422

(October 15, 1998).
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A number of different approaches have been offered to solve the 

“problem.” One proposed solution is to insulate a trust fund from 

the normal budgetary pressures by taking 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. Bowsher Testimony, supra. In the Transportation Equity Act 

for the 21st Century (TEA-21), Pub. L. No. 105-178, 112 Stat. 107 

(1998), 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 Statement of Susan J. 

Irving, Associate Director, Budget Issues, AIMD, Cap Structure and

Guaranteed Funding, GAO/T-AIMD-99-210, before the Committee on 

Rules, House of Representatives (July 1999).