Check-Off Programs: Observations from the Propane and Heating Oil Programs
Published: 2015-07-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congressionally authorized research and promotion programs, also known as check-off programs, may be established under federal law at the request of their industries. These programs are designed to increase the success of businesses that produce and sell certain commodities, such as milk and beef. To fund such programs, producers set aside a fraction of the wholesale cost of a product and deposit the monies into a common fund.
In June 2010, GAO reported on two such programs, PERC and NORA, for the propane and oilheat industries (GAO-10-583). Legislation is currently being considered for a check-off program for the concrete and masonry industry. For this testimony, GAO focused on (1) mandatory functions and priorities for PERC and NORA programs and projects, (2) whether PERC and NORA activities were covered by certain legal requirements, and (3) federal oversight of PERC and NORA. For the 2010 report, GAO reviewed relevant laws, financial statements, annual reports, meeting minutes, and other reports. GAO also interviewed officials from the departments of Energy and Commerce and the private sector. GAO updated legislative information in July 2015.
GAO's June 2010 report suggested that Congress consider clarifying certain requirements and specifying priority ranking, expenditures, and a DOE oversight role. When Congress reauthorized NORA in 2014, it amended the Oilheat Act by, among other things, taking actions on GAO's suggestions.
section_title: What GAO Found
paragraphs: As GAO reported in June 2010, the Propane Education and Research Act of 1996 (the Propane Act) and the National Oilheat Research Alliance Act of 2000 (the Oilheat Act), which authorized the establishment of the Propane Education and Research Council (PERC) and National Oilheat Research Alliance (NORA), specified the following areas as mandatory functions and priorities:
Research and development : The Propane Act requires PERC to develop programs for research and development of clean and efficient propane utilization equipment. The Oilheat Act directs similar oilheat-related research and development and directs NORA to fund demonstration projects.
Safety and training/education and training : Both acts require development of programs to enhance consumer and employee safety and training. PERC refers to this area as “safety and training,” and NORA refers to it as “education and training.”
Public/consumer education : The Propane Act directs PERC to develop projects to inform and educate the public about safety and other issues associated with the use of propane. Similarly, the Oilheat Act directs NORA to develop programs that provide information to assist consumers and other persons in making evaluations and decisions regarding oilheat. Such activities have included developing radio, television, and print advertising.
To fund their operations, the acts require PERC and NORA to assess each gallon of odorized propane gas or heating oil sold at $0.004 and $0.002, respectively.
GAO found that some PERC and NORA activities appeared to meet the requirements of the acts, but certain other activities raised issues. For example, activities involving Congress or politically affiliated entities raised issues about whether they were covered by the acts' specific lobbying restrictions. Even if these activities were permitted, issues remained about whether Congress anticipated that assessment funds would be used to fund them, particularly when PERC and NORA classified this spending as “consumer education”—one of the functions required by the acts. Other issues GAO identified related to whether Congress anticipated that PERC and NORA would allocate the majority of their funding to education activities over the past decade (more than half), while allocating relatively little financial support to research and development (8 percent for PERC and less than 6 percent for NORA). When the laws were debated and before they were enacted, research and development had been a key area of congressional interest and ultimately was reflected as both a mandatory “function” and a high-focus “priority” in the final version passed by Congress
GAO found limited federal oversight of PERC and NORA. As of June 2010, the Department of Energy had not used the oversight authority granted by the Propane and Oilheat acts, such as by reviewing budgets or making recommendations to PERC and NORA, as authorized by law. This lack of oversight was long-standing. For example, in a 2003 report GAO had found that DOE's oversight of PERC was lacking and recommended corrective action.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our prior work on congressionally  authorized research and promotion programs, also known as check-off  programs, as the Subcommittee considers proposed legislation for a  check-off program for the concrete and masonry industry. As you know,  check-off programs may be established by Congress under federal law at  the request of their industries, with the goal of increasing the success of  the businesses and farmers that produce and sell certain commodities.  To fund check-off programs, a fraction of the wholesale cost of a product  is set aside by the producer and deposited into a common fund to be  used to benefit producers and consumers. For example, more than 20  such programs are in place for agriculture commodities, including milk,  beef, pork, and cotton, and each program is administered by a board or  committee. According to an October 2008 Congressional Research  Service report, the Department of Agriculture’s Agricultural Marketing  Service (AMS) has some administrative and oversight responsibilities for  those agriculture programs, but the producer-contributor boards that run  them must reimburse AMS for such costs.
My testimony focuses on the results of our June 2010 report on the  Propane Education and Research Council (PERC) and National Oilheat  Research Alliance (NORA)—two federally-authorized check-off  programs. Congress authorized the creation of these two national entities and provided the U.S. Department of Commerce (Commerce) and  the U.S. Department of Energy (DOE) with certain related authority to  implement these programs. The Propane Education and Act of 1996 (the  Propane Act) and the National Oilheat Research Alliance Act of 2000  (the Oilheat Act) authorized the establishment of PERC and NORA,  respectively. The Oilheat Act, as amended, is currently authorized until  February 2018, and the Propane Act does not expire. PERC and NORA  have provided the framework for propane and oilheat producers and  marketers to establish self-help, nonfederal programs of research and  development, training, safety, and consumer education activities. Both the  Propane Act and the Oilheat Act outline key procedural, administrative,  and spending requirements to administer these programs.
My testimony today focuses on (1) mandatory functions and priorities for  PERC’s and NORA’s programs and projects, (2) whether PERC and  NORA activities were covered by certain legal requirements in the  Propane and Oilheat Acts, and (3) federal oversight of PERC and NORA.  In preparing this testimony, we relied on our work supporting our June  2010 report and updates from July 2015 as a result of recent legislative  changes since our report was issued. For our June 2010 report, we  reviewed the Propane and Oilheat acts and PERC and NORA financial  statements, annual reports, meeting minutes, and other reports. We also  obtained information and views on both PERC and NORA from a wide  range of officials in DOE and the Departments of Commerce and  Agriculture and the private sector. More details on the scope and   We  methodology for our work can be found in the issued report.conducted the work on which this statement is based in accordance with  generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.
subsections: section_title: Mandatory Functions and Priorities for PERC and NORA’s Programs and Projects
paragraphs: As discussed in our June 2010 report, both the Propane and Oilheat Acts  specify three areas as mandatory functions and priorities for PERC’s and  NORA’s programs and projects.follows:   The three mandatory areas are as
Research and development: The Propane Act requires PERC to  develop programs that provide for research and development of clean  and efficient propane utilization equipment. The Oilheat Act directs  similar oilheat-related research and development and directs NORA to  fund projects in the demonstration stage of development. According to  our analysis of PERC’s audited financial statements, annual reports,  and other financial information that they provided to us for our June  2010 report, of the about $350.6 million collected from assessments  for 1998 to 2008, PERC and its affiliated state propane associations  spent $28.1 million for research and development (8 percent).  According to our analysis of NORA’s audited financial statements,  annual reports, and other financial information, of the more than  $107.4 million NORA collected from assessments for 2001 to 2008,  NORA and the affiliated state associations spent $6.2 million (5.8  percent) on research and development.
Safety and training/education and training: Both the Propane Act  and the Oilheat Act require development of programs to enhance  consumer and employee safety and training. PERC refers to this  program area as “safety and training,” and NORA refers to it as  “education and training.” Projects that fall into this spending category  include developing employee training materials and conducting  training courses for industry personnel. According to our analysis of  PERC’s and NORA’s audited financial statements, annual reports,  and other financial information that they provided to us for our June  2010 report, from 1998 to 2008, PERC and its affiliated state propane  associations spent $50.7 million for safety and training (14.5 percent),  and from 2001 to 2008, NORA and the affiliated state associations  spent $17.8 million (16.5 percent) on education and training.
Public/consumer education: The Propane Act directs PERC to  develop projects to inform and educate the public about safety and  other issues associated with the use of propane. Similarly, the Oilheat  Act directs NORA to develop programs that provide information to  assist consumers and other persons in making evaluations and  decisions regarding oilheat. Such activities have included the  development of radio, television, and print advertising directed at  consumers and industry professionals. According to our analysis of  PERC’s and NORA’s audited financial statements, annual reports,  and other financial information that they provided to us for our June  2010 report, from 1998 through 2008, PERC spent about $178.6  million for consumer education (50.9 percent), and from 2001 through  2008, NORA spent $68.4 million for consumer education (63.7  percent).
To fund their operations, PERC and NORA assess each gallon of  propane or heating oil, respectively. Specifically, to fund PERC  operations, each gallon of odorized propane gas sold is assessed  $0.004. To fund NORA operations, each gallon of heating oil sold is  assessed $0.002.
While the Propane and Oilheat Acts contain certain restrictions on the  types of activities PERC and NORA can undertake, the acts generally do  not prohibit PERC and NORA from conducting programs or projects  beyond these mandatory areas identified above, and both organizations  have carried out additional activities. PERC, for example, has spent funds  on agriculture and engine fuel programs. In addition, to coordinate its  activities with other parties, as required by the Propane Act, PERC has  established an industry programs area to provide support, data, and other  services to the propane industry and maximize its impact. Likewise, in  2004 and 2005, NORA funded an oil tank training and education program  for tank installers, inspectors, and insurers to address concerns about  storage tanks, which NORA officials stated spanned all three mandatory  areas in the statute.
section_title: Certain Activities Raised Issues about Whether They Were Covered by Restrictions in the Acts
paragraphs: In our June 2010 report, we found that some PERC and NORA activities  appeared to meet the requirements of the acts, but certain other activities,  such as some activities involving Congress or politically affiliated entities,  raised issues as to whether they were covered by the Propane and  Oilheat Acts’ specific lobbying restrictions. Even when we assumed that  these activities were permitted, issues remained about whether Congress  anticipated that assessment funds would be used for these types of  activities. We also found issues concerning PERC’s funding of consumer  education activities after spending restrictions were triggered and NORA’s  monitoring of the expenditures of its funds by state associations.
subsections: section_title: PERC and NORA Activities Related to Congress and Politically Affiliated Entities
paragraphs: The Propane Act prohibits the use of PERC assessment funds for certain  “lobbying” activities, specifically for “influencing legislation or elections,”  except for recommending to the Secretary of Energy any changes in the  act or other statutes that would further the act’s purposes. At the time of  our June 2010 review, the Oilheat Act contained similar provisions, some  of which were amended in 2014.NORA’s activities––particularly communications and expenditures related  to Congress or to politically affiliated entities––raised issues as to whether  they were covered under the acts’ lobbying restrictions.
However, some of PERC’s and  In our June 2010 report, we found, for example, that PERC paid for a  grantee to attend activities associated with the Republican and  Democratic national conventions, for a grantee to contribute thousands of  dollars to several politically active organizations, and for a grantee to  spend thousands of dollars to host Senate and House receptions. We  also found that minutes of an August 2008 NORA executive committee  meeting indicated that the NORA President said he was seeking state  senators’ support for NORA reauthorization and that a December 2008  NORA-qualified Massachusetts state association newsletter indicated that  the NORA President traveled to Washington to urge both Massachusetts  senators to support NORA reauthorization.
We found that neither the Propane Act nor the Oilheat Act provided  guidance on what constitutes “influencing legislation or elections;” there  was little pertinent legislative history; no court had addressed what this  language means as used in these statutes; and other federal laws  containing similar language had been interpreted in different ways. As  such, it was not clear whether or not the Propane Act’s or the Oilheat  Act’s prohibitions covered those types of activities. Even when we  assumed PERC’s and NORA’s activities were permitted, issues remained  about whether Congress anticipated that the assessment funds would be  used for these activities, particularly when PERC and NORA had  classified this spending as “consumer education,” one of the functions  that the acts require PERC and NORA to carry out. Specifically, issues  remained about whether they qualified as “consumer education” under  the acts. Issues also remained about whether Congress anticipated that  such a high proportion of the groups’ funding would go to consumer  education activities (i.e., more than half), in comparison to the relatively  little support given to research and development (i.e., 8 percent for PERC  and less than 6 percent for NORA), which had been a key area of  congressional interest as the laws were debated prior to enactment.
Because PERC’s and NORA’s authorizing statutes did not provide for a  particular funding level for specific activities or indicate a ranking among  the activities designated as priorities, they afforded PERC and NORA  wide latitude in deciding how and in what amounts they spent  assessments collected. Since the legislative history of both statutes  indicated that a need for research and development funding was a key  factor driving the legislation, PERC’s and NORA’s decisions to spend  over half of their funding on consumer education raised issues about  whether these funds were being used as Congress anticipated.  Furthermore, while some PERC and NORA activities appeared to meet  statutory requirements, the lack of specificity in the language of the  statutes raised issues about what activities were covered under certain   we suggested that as  provisions of the acts. In our June 2010 report,Congress considers whether to reauthorize NORA or amend PERC’s  authorizing statute, it consider imposing greater specificity on the  requirements it has established and to establish mechanisms to enhance  compliance with those requirements. Specifically, we suggested that  Congress should consider  specifying any prioritization of activities it wants to be undertaken and  detailing more specifically which activities are prohibited (such as  some of those involving lobbying) and  subjecting PERC’s and NORA’s activities to review, interpretation and  approval by an independent, designated entity and specifying a  federal oversight role by requiring DOE to monitor and oversee the  expenditure of PERC and NORA funds.
section_title: PERC Funding of Consumer Education Activities after Spending Restrictions Were Triggered
paragraphs: In our June 2010 report, we also found that PERC initially designated  certain activities as “consumer education” but, when price-based  restrictions on consumer education programs were triggered in 2009, it  redesignated and continued the activities as “residential and commercial”  matters. The Propane Act specified that if the 5-year average rolling price  index of consumer grade propane exceeds a particular price threshold,  PERC’s activities must be restricted to research and development,  training, and safety. Commerce notified PERC in August 2009 that this  price composite index threshold had been exceeded. We found that, after  the August notification, PERC approved three grants, including a no-cost  change order to a previously approved grant. These grants initially had  been proposed and approved as consumer education grants, which  would be prohibited under the restriction, and PERC amended their  designation to a new program area called “residential and commercial”  matters. The Propane Act did not specifically define the scope of activities  permitted under the price restriction or the activities that must cease.  We concluded that the resulting lack of a precise statutory line between  permitted and prohibited activities created difficulty in assessing  compliance with the restriction.
section_title: NORA Monitoring of State Associations
paragraphs: In our June 2010 report, we also found issues concerning NORA’s  monitoring of state oilheat associations. It was unclear during our review  whether NORA’s monitoring procedures were adequate to detect  noncompliance among its state grantees if it occurred. The Oilheat Act  required NORA to monitor the use of funds it provides to state  associations and impose any terms and conditions it considers necessary   The Oilheat Act also required NORA  to ensure compliance with the act.to establish policies and procedures that conform to generally accepted  accounting principles (GAAP) for auditing compliance with the act.  According to NORA’s President, monitoring of state associations  included, among other things, policies and procedures to review state  grants and disbursements and requirements in grant agreements with the  state associations that specify the authorized and unauthorized use of  NORA assessment funds. However, based on our review of general  ledger entries, financial statements, and certain other reports and  information prepared by selected state associations for our June 2010  report, we were unable to determine whether spending by state  associations of NORA funds met the requirements of the Oilheat Act. For  example, based on our review of the general ledger expenditures entries  for 2006 to 2008, we found that hundreds of entries indicated only that a  purchase was made, with no details as to the type of or reason for the  purchase. We suggested that Congress consider requiring NORA funds  granted to qualified state associations be segregated in separate  accounts, apart from other funds collected and used by those  associations. Consistent with this suggestion, in NORA’s 2014  reauthorization, the Oilheat Act was amended so that as a condition of  receiving funds from NORA, each state association is to deposit the funds  in an account that is separate from other funds of the qualified state  association.
section_title: Federal Oversight of PERC and NORA Has Been Limited, Unlike Federal Oversight of Agriculture Check-off Programs
paragraphs: In our June 2010 report, we found that the federal oversight of PERC and  NORA was limited, which was in contrast to the routine federal oversight  of agriculture check-off programs that had existed. DOE did not exercise  its oversight authority for either PERC or NORA, and DOE officials told us  that they believed that the department had no oversight role regarding  either one. DOE, however, is empowered to review both organizations’  annual budgets; to recommend activities and programs it deems  appropriate; and, in PERC’s case, to require submission of reports on  compliance, violations, and complaints regarding implementation of the  Propane Act. We found that although DOE is authorized to be reimbursed  by PERC for the department’s PERC-related oversight costs (up to the  average salary of two DOE employees), DOE officials told us the  department never requested reimbursement because it did not incur any  oversight costs. This lack of oversight is part of a long-standing pattern.  For example, in a June 2003 report, we found that DOE’s oversight of  PERC was lacking and recommended that the department take corrective  action.Commerce rather than DOE had oversight responsibility and, therefore,  DOE did not act on our recommendation. In June 2010, we found that  DOE’s position regarding PERC remained unchanged.
In its response to our June 2003 report, DOE stated that  Importantly, as neither the Propane nor the Oilheat Act contained a  specific enforcement mechanism for any potential PERC or NORA  violations, in June 2010 we concluded that any oversight program  implemented by a federal agency would be hampered. As a result, in our   we suggested that as Congress considers whether to  June 2010 report,reauthorize NORA or amend PERC’s authorizing statute, it may wish to  impose greater specificity on the requirements it has established and to  establish mechanisms to enhance compliance with those requirements.  Specifically, we suggested that Congress should consider establishing a  specific enforcement mechanism, and expressly authorizing DOE to refer  any potential violations of law to appropriate enforcement authorities.  Consistent with our suggestion, when Congress reauthorized NORA in  2014, it amended the Oilheat Act to, among other things, provide that in  the event of a violation of the act, the Secretary of Energy is to notify  Congress of the noncompliance and provide notice of the noncompliance   With respect to PERC, although Congress made  on NORA’s website.technical clarifications to the Propane Act in 2014 as noted above, it did  not address this suggestion we made in 2010.
As discussed earlier, Congress has authorized check-off programs for agriculture  commodities, such as beef, blueberries, cotton, dairy products, eggs, peanuts, popcorn,  pork, and potatoes, and USDA has mandated oversight activities over these programs. advertising campaigns, and investment plans, the AMS, among other  things, ensures that the collection, accounting, auditing, and expenditure  of promotion funds is consistent with the enabling legislation and  department orders.
Chairman Burgess, Ranking Member Schakowsky, and Members of the  Committee, this completes my prepared statement. I would be pleased to  answer any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff members have any questions about this testimony,  please contact me at (202) 512-3841 or by e-mail at ruscof@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. Marya Link,  Alison O’Neill, Kiki Theodoropoulos, Susan Sawtelle, and Barbara  Timmerman made key contributions to this testimony.
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