oversight

[Comments on GSA Authority To Compromise Debt]

Published by the Government Accountability Office on 1997-12-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      B-276550


      December 15, 1997



      Mr. William R. Barton
      Inspector General
      General Services Administration

      Dear Mr. Barton:

      This responds to your request for our opinion on whether the Administrator,
      General Services (GSA), has the authority to compromise debt arising from the
      disposal of surplus property under section 204(g) of the Federal Property and
      Administrative Services Act of 1949 (Property Act), 40 U.S.C. § 485(g) (1994).
      Section 204(g) provides that where the Administrator has extended credit in
      connection with the disposal of surplus property, he "may enforce, adjust, and settle
      any right of the Government with respect to [that credit] in such manner and upon
      such terms as he deems in the best interest of the Government." As explained
      below, section 204(g) does not provide the Administrator with compromise
      authority.

      While you have asked for our views on this issue, we note that our statutory role in
      this area was limited in 1996, when the Congress transferred the Comptroller
      General's authority under 31 U.S.C. § 3702(a) to settle and adjust claims of or
      against the United States to the Office of Management and Budget (OMB). OMB in
      turn delegated parts of this authority to other executive departments and agencies.
      Pub. L. No. 104-316, Tit. II, § 202(n)(1), 110 Stat. 3843-44 (1996); see also Pub. L. No.
      104-53, § 211, 109 Stat. 535 (1995).

      Background

      Your question arose in connection with the GSA sale of the United States Custom
      House in Boston to the City of Boston. In March 1986, GSA declared that the
      Custom House was surplus property, and, in October 1987, sold it to Boston,
      receiving from the city a 10-year promissory note. In April 1991, Boston defaulted
      on the note. At the time, Boston's total outstanding debt (principal and
      accumulated interest) exceeded $13 million. In January 1996, after a restructuring



                                                                                      11341215
of the debt and almost 5 years of negotiations, the city discharged its debt for
approximately $6.1 million.

Your office has concluded that the Administrator's restructuring of Boston's loan
agreement and eventual agreement to Boston's discharge of the debt resulted in
compromises of Boston's debt in violation of the FCCA. In January 1996, when
GSA discharged Boston's debt, the FCCA limited agencies' compromise authority to
claims that did not exceed $20,000. Pub. L. No. 89-508, § 3, 80 Stat. 308, 309 (1966).1

GSA disagrees that its actions constituted a compromise, but argues, nevertheless,
that section 204(g) of the Property Act, in authorizing the Administrator to
restructure credit offerings, permits GSA to compromise debt, and that section
204(g), enacted prior to the FCCA, supersedes any restrictions imposed by the
FCCA.2

In your view, the Property Act did not grant the Administrator the authority to
compromise debts. As requested by your office, our opinion does not address
GSA's sale of the Custom House and GSA's contention that its actions do not
constitute a compromise of debt. Rather, we address only the question whether
section 204(g) permits the Administrator to compromise debt.

Discussion
                                          I.

The Constitution lodges the power to release or otherwise dispose of the rights and
property of the United States in the Congress. U.S. Const., Art. IV, § 3, Cl. 2; Royal
Indemnity Co. v. United States, 313 U.S. 289, 294 (1941). For this reason, absent
statutory authority, the officers and agents of the government have no authority to
waive contractual rights which have accrued to the United States or to modify
existing contracts to the detriment of the United States without adequate legal
consideration or a compensating benefit. 67 Comp. Gen. 271, 273 (1988). In this
regard, the FCCA provides the officers and agents of the government with the


1
 The FCCA, as amended by the Debt Collection Improvement Act, now authorizes
heads of agencies, generally, to compromise debts, but only in amounts of not more
than $100,000. 31 U.S.C.A. § 3711(a)(2) (West Supp. 1997). The Federal Claims
Collection Standards require that agencies refer to the Department of Justice for
approval any proposal to compromise debt in excess of $100,000. 4 C.F.R.
§ 103.1(b) (1997).
2
 Section 4 of the FCCA specifies that the authorities provided agencies by the FCCA
were not intended to diminish any pre-existing authority that an agency had to
compromise debt. Pub. L. No. 89-508, § 4, 80 Stat. 309 (1966).

Page 2                                                                        B-276550
                                                                              11341215
authority to compromise debts of less than $100,000 without Justice Department
approval and in excess of $100,000 with Justice Department approval. 31 U.S.C.
§ 3711(a)(2) (West Supp. 1997). While the FCCA or its implementing regulations do
not define the word "compromise", it is commonly understood to mean the
discharge of a debt for less than the outstanding balance without any compensating
benefit. See, e.g., 62 Comp. Gen. 489, 492 (1983) ("the discretion . . . to allow the
borrower to discharge the debt by paying less than the outstanding balance"). See
also S. Rep. No. 89-1331, at 2, reprinted in 1966 U.S.C.C.A.N., at 2532-33 (FCCA
legislative history).

In the absence of express statutory language, as a general rule, the authority to
adjust and settle claims does not confer the authority to compromise claims.
62 Comp. Gen. 489, 490 (1983); B-200112, May 5, 1983. This rule draws support
from a 1916 Supreme Court decision, Illinois Surety Co. v. United States ex rel.
Peeler, 240 U.S. 214 (1916). After reviewing the statutes establishing the
administrative practice for claims and account settlement, the Court pointed out
that "[t]he words 'settled and adjusted' [as used in the predecessor statute to
31 U.S.C. § 3702 (1994)] were taken to mean the determination in the Treasury
Department for administrative purposes of the state of the account and the amount
due." Accordingly, the Court concluded that "[t]he word 'settlement' in connection
with public contracts and accounts . . . has a well defined meaning as denoting the
appropriate administrative determination with respect to the amount due." Id. at
221. In this context, the Supreme Court's limited definition is applicable. See, e.g.,
B-276561, Sept. 30, 1997.

Where the Congress has authorized agencies to waive contractual rights and
compromise debt, it has done so by providing specific authority. For example, the
Administrator of the Small Business Administration is authorized to "sue and be
sued" and "pursue to final collection, by way of compromise . . . all claims against
third parties assigned to the Administrator," 15 U.S.C. § 634(b)(l), (4); the Secretary
of the Department of Veterans Affairs is authorized to "sue and be sued" and "pay,
compromise, waive or release any right, title, claims, lien or demand . . . ," 38 U.S.C.
§ 3720(a)(1), (3), (4); and, the Secretary of Agriculture is authorized to
"compromise, adjust, reduce, or charge-off debts or claims, and adjust, modify,
subordinate, or release the terms of security instruments, leases, contracts, and
agreements entered into or administered by the Farmers Home Administration . . . ,"
7 U.S.C. § 1981(d).

                                          II.

At issue here is whether section 204(g) of the Property Act provides the
Administrator with such authority. Section 204(g) provides as follows:

         "Where credit has been extended in connection with any disposition of

Page 3                                                                         B-276550
                                                                               11341215
         surplus property . . . or where such disposition has been by lease or
         permit, the Administrator shall administer and manage such credit,
         lease, or permit, and any security therefor, and may enforce, adjust,
         and settle any right of the Government with respect thereto in such
         manner and upon such terms as he deems in the best interest of the
         Government." 40 U.S.C. § 485(g).

In its response to your report on the sale of the Custom House, GSA states that
since 1955, it has interpreted section 204(g) as providing the Administrator with
compromise authority. In the 1955 opinion, addressing the sale of notes and
mortgages acquired in the course of a sale of surplus property pursuant to section
204(g), GSA's General Counsel stated that

         "where a debtor is in default in payment under such a note, settlement
         with the debtor for an amount less than the face value is authorized
         under the provision in section 204(g) of the Act authorizing the
         Administrator to 'enforce, adjust and settle any right of the
         Government with respect thereto in such manner and upon such terms
         as he deems in the best interest of the Government.'"

Opinion of the General Counsel No. 99, Mar. 10, 1955.

OMB, recently, reached the same conclusion. In a May 19, 1997, memorandum to
GSA, OMB, referring to the clause in section 204(g), "in such manner and upon such
terms . . . ", stated,

         "this provision cannot reasonably be construed as having conveyed
         only the non-discretionary authority to 'determine the amount due.'
         . . . The 'no compromise' theory . . . cannot account for, and in fact is
         inconsistent with, the discretionary authority that is conveyed by
         virtue of the 'upon such terms' language of the GSA statute."

Section 204(g), by its terms, authorizes the Administrator only to "adjust, and
settle". Noticeably missing from section 204(g) is the word (or words equivalent in
effect to) "compromise". Clearly, the clause "in such manner and upon such terms"
modifies the phrase "adjust, and settle", and, thus, does not overcome the general
rule and establish authority to compromise. In our view, section 204(g) authorizes
the Administrator to fix the amount owed by the purchaser ("adjust, and settle"),
and, because of the clause, permits the Administrator discretion in adjusting the
terms of any credit offered, for example, by extending its repayment period.




Page 4                                                                           B-276550
                                                                                 11341215
Cf. 67 Comp. Gen. 271 (1988)3 and cases cited therein. Because it does not clearly
and expressly authorize the Administrator to compromise, the Administrator may
not allow the debtor to pay less than the outstanding balance owed or otherwise
waive a right of the United States without obtaining some consideration or other
compensating benefit in return. To do so is tantamount to a compromise. To read
section 204(g) as permitting compromise would require us to infer compromise
authority from its general language.4

As noted above, GSA advised that it has interpreted section 204(g) as providing
compromise authority since 1955. However, in a January 8, 1992 opinion that
discusses the Administrator's authority to waive debts due to the United States,
GSA concluded that a restructuring of debts for less than the full amount due, i.e.
compromising the debt, required Justice Department approval. Memorandum to
James J. Buckley, Special Assistant, Office of the Commissioner, Federal Property
Resources Service, from Gordon S. Creed, Deputy Associate General Counsel, Real
Property Division, Jan. 8, 1992. In that opinion, GSA stated:

         "[a] preferred approach to situations where a debtor has fallen in
         arrears is refinancing of the obligation. For example, the conditions of
         a note, including its payment term and interest rate, may be modified
         allowing the debtor to work out any difficulty encountered with the
         obligation. Under the authorities granted to the Administrator, this
         method may be undertaken without the approval of the Attorney
         General or the Comptroller General of the United States; however, any
         such arrangement must ensure that the United States receives the full
         amount owing to it."

On the other hand in a March 6, 1992 opinion, GSA asserts that section 204(g) does
provide the Administrator compromise authority. Memorandum to Earl E. Jones,


3
 The Small Business Administration (SBA), unlike GSA, had express authority to
compromise debts as well as to modify (or adjust) the terms of loans. SBA opined,
and we agreed, that its authority to modify loans was separate and distinct from its
compromise authority. SBA would compromise debts after SBA concluded that its
debtor was unable to pay the debt, but would require adequate legal consideration
from its debtor before its would agree to modifications that would reduce the value
of a loan.
4
 We are aware of only one instance where compromise authority has been inferred
when not expressly granted by statute. In that instance, the agency had "sue and be
sued" authority. We accepted without objection the Virgin Islands Company's
authority to compromise damage claims for personal injuries as part of its authority
to "sue and be sued". 25 Comp. Gen. 685, 687 (1946).

Page 5                                                                         B-276550
                                                                               11341215
Commissioner, Federal Property Resources Service, from Gordon S. Creed, Deputy
Associate General Counsel, Real Property Division, Mar. 6, 1992. In that opinion,
GSA stated:

         [i]t is our opinion that the Administrator is authorized to compromise
         or write-off-debts . . . in excess of $100,000 without referring such
         matters to the Department of Justice . . ."5

In our opinion, GSA may refinance or otherwise review the terms of its credit
offerings under section 204(g). However, because section 204(g) does not provide
GSA with compromise authority, GSA may not revise the terms of its credit
offerings in such a way that would result in a reduction of the outstanding balance
unless it receives adequate consideration from the debtor in return.

                                           III.

If GSA persists in its current interpretation of section 204(g), we would suggest that
GSA formally request a decision from the Attorney General interpreting section
204(g). Except in a few instances not relevant here, the Attorney General, as noted
above, has sole authority to compromise debts exceeding $100,000, and she,
together with the Secretary of the Treasury, prescribes the standards (FCCS)
implementing FCCA, including its provisions governing compromises.

We trust that you will find this useful. We would be happy to discuss this matter
with you further if you have additional questions. Please call Gary Kepplinger or
Tom Armstrong of my staff at (202) 512-5644.

Sincerely yours,




Robert P. Murphy
General Counsel




5
 According to the GSA memo, the Department of Justice "accepted" GSA's proposal
in 1992 to refinance Boston's note. It is not clear whether Justice agreed with
GSA's opinion that section 204(g) authorizes the Administrator to compromise
debts.

Page 6                                                                            B-276550
                                                                                  11341215
B-276550




DIGEST


In our opinion, section 204(g) of the Federal Property and Administrative Services

Act, 40 U.S.C. § 485(g), which authorizes the Administrator of the General Services

Administration (GSA) to "adjust, and settle" amounts owed GSA, "upon such terms

as [GSA] deems in the best interest of the Government," does not permit the

Administrator to compromise debts in the absence of adequate legal consideration.

Where the Congress has authorized agencies to compromise debts, it has provided

specific statutory authority to do so. Because of the Attorney General's authorities

under the Federal Claims Collection Act, as amended, 31 U.S.C. § 3711(a)(2), to

compromise debts owed the United States exceeding $100,000, we suggest that the

Administrator ask the Attorney General for her interpretation of section 204(g).