Opinion ID: 658294
Heading Depth: 2
Heading Rank: 1

Heading: Independent Capital Contribution

Text: 11 Congress enacted the 1987 amendments to recover excess cash reserves from state guaranty agencies. H.R.Conf.Rep. 100-495, 100th Cong., 1st Sess. 518. Congress defined excess cash reserves as the greater of: 12 (A) 40 percent of the total amount paid by that agency on insurance claims during the preceding fiscal year; (B) 0.3 percent of original principal amount of loans that are insured by that agency and that are outstanding at the end of such preceding fiscal year; (C) an amount which, when combined with all other parts of total agency reserves, equals 0.4 percent of such original principal amount; (D) $500,000; or (E) the amount required to comply with the reserve requirements of a State law as in effect on October 17, 1986. 13 20 U.S.C. Sec. 1702(e)(1). Congress' definition thus did not distinguish between program-generated and other types of reserve fund assets. 14 Although PRHEAC argues that Congress meant to recover only those cash reserves generated by program operations, it is hard pressed to find a statutory basis for this claim. Principally, PRHEAC relies on the 1986 study that the General Accounting Office (GAO) conducted of Guaranteed Student Loans. See General Accounting Office, Pub. No. GAO/HRD-86-57, GUARANTEED STUDENT LOANS: BETTER CRITERIA NEEDED FOR FINANCING GUARANTEE AGENCIES (1986) [hereinafter REPORT]. That study, which prompted the 1987 amendments, found, inter alia, that GSL agencies typically accumulated cash reserves in excess of those needed for effective program operations. It therefore recommended that Congress amend the Higher Education Act to limit the accumulation of excess cash reserves and thereby reduce federal GSL expenditures. See REPORT at 3-4. PRHEAC contends that this recommendation, which the 1987 amendments adopted, encompassed only program-generated reserves, not those attributable to independent sources. We disagree. 15 The GAO Report defined cash reserves as the funds accumulated by an agency when its sources exceed its uses. REPORT at 14. The Report explicitly recognized that GSL program cash reserves derived from many sources, including state appropriations, yet it did not differentiate among those sources when framing its principal findings and recommendations. Id. at 22. The underlying purpose and plain language of the 1987 amendments thus suggest to this court that Congress intended all reserve fund assets, regardless of their source, to factor into the Department's calculations of excess cash reserves. Therefore, we are unpersuaded that the 1987 amendments were designed to recover only program-generated excess reserves while leaving other excess funds undisturbed. 16 PRHEAC also argues that its parent corporation's subsequent withdrawal of its independent capital contributions barred the Department from factoring those funds into the determination of PRHEAC's waiver eligibility. Again, we find no statutory authority to support PRHEAC's claim. We conclude that it was not arbitrary and capricious for the Department to consider PRHEAC's independent capital contributions when calculating PRHEAC's excess cash reserves or determining its waiver eligibility. It is elsewhere in the statute that the Department stumbled.