oversight

Agency Operations: Agencies Must Continue to Comply with Fiscal Laws Despite the Possibility of Sequestration

Published by the Government Accountability Office on 2012-04-25.

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

                             United States Government Accountability Office

GAO                          Testimony
                             Before the Committee on the Budget,
                             House of Representatives


                             AGENCY OPERATIONS
For Release on Delivery
Expected at 10:00 a.m. EDT
Wednesday, April 25, 2012



                             Agencies Must Continue to
                             Comply with Fiscal Laws
                             Despite the Possibility of
                             Sequestration
                             Statement of Susan A. Poling
                             Deputy General Counsel




GAO-12-675T
                                               April 2012

                                               AGENCY OPERATIONS
                                               Agencies Must Continue to Comply with Fiscal Laws
                                               Despite the Possibility of Sequestration
Highlights of GAO-12-675T, a testimony
before the Committee on the Budget, House of
Representatives.




Why GAO Did This Study                         What GAO Found
This testimony addresses two issues:           The Budget Control Act of 2011, amending the Balanced Budget and Emergency
(1) the application of the Antideficiency      Deficit Control Act of 1985, establishes limits on discretionary spending for fiscal
Act and the Impoundment Control Act            years 2012 through 2021. In addition, the Act specifies additional limits on
as agencies prepare for a possible             discretionary spending and automatic reductions in direct spending because
sequestration under the Budget                 legislation was not enacted that would reduce projected deficits by at least
Control Act; and (2) the meaning of            $1.2 trillion by the end of fiscal year 2021. Among other things, the Budget
“program, project, and activity,” under        Control Act requires the Office of Management and Budget (OMB) to calculate,
the Budget Control Act.                        and the President to order, a sequestration of discretionary and direct spending
GAO has an oversight role with respect         on January 2, 2013, to achieve reductions for that fiscal year.
to both the Antideficiency Act and the
                                               Despite the possible impact of any sequestration, agencies must continue to
Impoundment Control Act. GAO
provides legal decisions and opinions
                                               comply with the requirements of the Antideficiency Act and the Impoundment
to Congress and federal officials on the       Control Act. The Budget Control Act does not waive the application of these two
application of the Antideficiency Act.         important fiscal laws, both of which underscore Congress’ constitutional power of
Agencies that violate the Antideficiency       the purse. These two laws act in concert: the Antideficiency Act prohibits
Act must report the violation to the           agencies from spending in excess or in advance of available appropriations or
President, Congress, and the                   apportionments, while the Impoundment Control Act bars agencies from refusing
Comptroller General. GAO compiles              to obligate the amounts that Congress has appropriated. Agencies must carry
and presents certain unaudited data            out their appropriations in accordance with both the Antideficiency Act and the
from Antideficiency Act reports filed          Impoundment Control Act regardless of the possibility of spending reductions
each fiscal year.                              beginning in the second quarter of fiscal year 2013.
GAO also reviews and reports on each           The Budget Control Act provides that sequestration for fiscal year 2013 will
special message made pursuant to the           reduce each nonexempt account by a uniform percentage necessary to achieve
Impoundment Control Act. The                   the calculated reduction for that fiscal year. OMB is required to implement
Comptroller General must report to             sequestration such that the same percentage reduction applies across all
Congress any impoundment that the              programs, projects, and activities within a budget account. Programs, projects,
President has failed to report. GAO            and activities are to be identified with reference to the relevant appropriation act
monitors the status of affected funds          or accompanying report for the relevant fiscal year or, for accounts not included
as well as prepares statistical
                                               in appropriation acts, with reference to the most recently submitted President’s
summaries and analyses for Congress.
                                               budget. Under this framework, each budget account must be analyzed
In addition, GAO is statutorily                separately to determine its component programs, projects, and activities, and
responsible for publishing and                 such a determination may require reference to the original appropriation act, to
maintaining standard terms related to          accompanying reports, or to the President’s budget. In that regard, GAO’s
the federal budget process. GAO has            definition of “program, project, or activity” in the Budget Glossary may be useful
previously looked at various definitions       to this analysis.
of “program, project, and activity”
under an earlier iteration of the              The Budget Control Act vests in OMB the authority to implement sequestration.
Balanced Budget and Emergency                  The execution and impact of any spending reductions will depend on the legal
Deficit Control Act.                           interpretations and actions taken by OMB. To date, OMB has not issued any
                                               guidance to agencies on preparing for implementation of the Budget Control Act
                                               or how it would construe “program, project, and activity.”




View GAO-12-675T. For more information,
contact Susan A. Poling at (202) 512-5207 or
polings@gao.gov.

                                                                                        United States Government Accountability Office
                          Chairman Ryan, Ranking Member Van Hollen, and Members of the
                          Committee:

                          Good morning. Thank you for inviting us here to speak with you today. My
                          name is Susan Poling, and I am Deputy General Counsel of the
                          Government Accountability Office. Prior to assuming this position, I was
                          responsible for GAO’s appropriations law decisions and opinions, the Red
                          Book, 1 and legal support for our budget issues group.

                          You asked GAO to talk about two topics today. First, you asked us to
                          discuss the application of two fiscal laws – the Antideficiency Act and the
                          Impoundment Control Act – as agencies prepare for a possible
                          sequestration under the Budget Control Act. You will hear that GAO has
                          an oversight role with respect to both the Antideficiency Act and the
                          Impoundment Control Act. Second, you asked us to discuss the meaning
                          of “program, project, and activity,” or “PPA,” under the Budget Control
                          Act. GAO is statutorily responsible for publishing and maintaining
                          standard terms related to the federal budget process. 2


Application of the        As you know, the Budget Control Act of 2011, amending the Balanced
Antideficiency Act and    Budget and Emergency Deficit Control Act of 1985 3, establishes limits on
Impoundment Control Act   discretionary spending for fiscal years 2012 through 2021. In addition the
                          Act specifies additional limits on discretionary spending and automatic
                          reductions in direct spending because legislation was not enacted that
                          would reduce projected deficits by at least $1.2 trillion by the end of fiscal
                          year 2021. 4 Among other things, the Budget Control Act requires the
                          Office of Management and Budget (OMB) to calculate, and the President




                          1
                           The Principles of Federal Appropriations Law, commonly referred to as the Red Book, is
                          a multi-volume treatise published by GAO on federal fiscal law.
                          2
                           31 U.S.C. § 1112(c). See GAO, A Glossary of Terms Used in the Federal Budget
                          Process, GAO-05-734SP (Washington, D.C.: Sept. 2005) (published in cooperation with
                          the Secretary of the Treasury and the Directors of the OMB and the Congressional Budget
                          Office).
                          3
                          Pub. L. No. 99-177, title II, 99 Stat. 1037, 1038 (Dec. 12, 1985).
                          4
                           Budget Control Act (BCA), Pub. L. No. 112-25, § 302, 125 Stat. 240, 256-59
                          (Aug. 2, 2011).




                          Page 1                                                                        GAO-12-675T
to order, a sequestration of discretionary and direct spending on
January 2, 2013, to achieve reductions for that fiscal year. 5

Regardless of the possible effects of any sequestration, agencies must
continue to comply with the requirements of the Antideficiency Act and
the Impoundment Control Act. The Budget Control Act neither explicitly
nor implicitly waives the application of these two important fiscal laws.
The Antideficiency Act and the Impoundment Control Act are two of the
major laws in the statutory scheme by which Congress exercises its
constitutional control of the public purse. These two acts go hand-in-hand:
the Antideficiency Act bars agencies from spending in excess of available
appropriations or apportionments, 6 while the Impoundment Control Act
generally bars agencies from refusing to obligate the amounts that
Congress has appropriated. Thus, these two laws in concert require that
agencies may spend neither more nor less than what Congress has
appropriated for their use. Instead, agencies must carry out the
appropriations that Congress has enacted. I will discuss each of these
laws in turn.

First, let me provide you with a bit of background on the Antideficiency
Act. During the 19th century, agencies often abused their power by
incurring obligations that exceeded available appropriations, entering into
obligations prior to receiving an appropriation, encouraging employees
and others to “volunteer” their services to the agency, and depleting their
appropriation early in the fiscal year. As a result, Congress felt compelled
to enact appropriations to cover deficiencies in budget authority.
Congress enacted a series of statutes to regain control over federal
spending. Together, these laws make up the Antideficiency Act.




5
 Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), § 251A, added
by BCA, § 302.
6
 An apportionment is the action by which OMB (for the Executive Branch) distributes
amounts available for obligation in an appropriation or fund account. An apportionment
divides amounts available for obligation by specific time periods (usually quarters),
projects, activities, objects, or a combination thereof. An apportionment may be further
subdivided by an agency into allotments, suballotments, and allocations. Glossary, at 12.




Page 2                                                                       GAO-12-675T
The Antideficiency Act includes two main prohibitions:

•     First, agencies cannot obligate or expend federal funds in excess or in
      advance of an appropriation, apportionment, or allotment. 7 In other
      words, agencies cannot spend more money than they have or spend
      money before they have it.

•     Second, agencies cannot accept voluntary services. 8

GAO regularly provides legal decisions and opinions to Congress, its
committees and Members, and federal officials on the application of the
Antideficiency Act. 9 The Antideficiency Act requires agencies violating its
proscriptions to report to the President and Congress all relevant facts
and a statement of actions taken, and transmit a copy of each report to
the Comptroller General on the same date the report is transmitted to the
President and Congress. 10 GAO compiles and presents certain unaudited
information from reports filed each fiscal year. 11

Agencies must continue to comply with the Antideficiency Act even as
they prepare for a possible sequestration. In anticipation of sequestration,
an agency may not overobligate its first-quarter apportionment, enter into
contracts without available appropriations, or ask its employees to
volunteer their time or waive compensation. An agency must continue to
operate within the confines of its appropriations despite the possibility of
sequestration.

The Impoundment Control Act, on the other hand, requires that agencies
obligate the amounts that Congress has appropriated. At various times in


7
 31 U.S.C. §§ 1341, 1517(a). See also OMB Circular No. A-11, Instructions on Budget
Execution, pt. 4, § 145 (Aug. 18, 2011).
8
31 U.S.C. § 1342.
9
 Congress authorizes the Comptroller General to settle the accounts of the United States.
31 U.S.C. § 3526. Our authority to issue appropriations law decisions and opinions is
drawn from this authority and a statutory direction to issue decisions upon the request of
certain federal officials in advance of a payment of appropriated funds. 31 U.S.C.
§§ 3527–3529.
10
    31 U.S.C. §§ 1351, 1517(b).
11
 GAO, Antideficiency Act Resources, available at
www.gao.gov/legal/lawresources/antideficiency.html (last visited Apr. 20, 2012).




Page 3                                                                        GAO-12-675T
history, Presidents have occasionally refused to spend money that
Congress appropriated for policy reasons, i.e., because they disagreed
with the need for the expenditure or the amount of the expenditure. For
instance, in 1972, President Nixon directed the Environmental Protection
Agency to disburse to the States only about half of the funds appropriated
for water pollution assistance. The Supreme Court found that the
President did not have the authority to withhold the funds. 12

Congress enacted the Impoundment Control Act of 1974 to tighten
congressional control over presidential impoundments and to establish a
procedure under which Congress could consider the merits of
impoundments proposed by the President. 13 An impoundment is any
action or inaction by an officer or employee of the federal government that
precludes obligation or expenditure of budget authority. 14 The
Impoundment Control Act separates impoundments into two categories:
deferrals and proposed rescissions. Under the Act, if the President
wishes to defer or temporarily postpone the obligation of any budget
authority provided for a specific purpose or project, he must transmit a
special message to Congress proposing such a deferral. 15 The special
message must describe, among other things, the amount of budget
authority proposed for deferral, the reasons for the deferral, and the
period of time during which the budget authority will be deferred. 16
Deferrals are permissible only to provide for contingencies, to achieve
savings made possible by or through changes in requirements or greater
efficiency of operations, or as specifically provided by law. 17 Deferrals are




12
 Train v. City of New York, 420 U.S. 35 (1975).
13
 2 U.S.C. §§ 681–688. See also B-320091, July 23, 2010; GAO, Impoundment Control
Act: Use and Impact of Rescission Procedures, GAO-10-320T (Washington, D.C.:
Dec. 16, 2009), at 1.
14
 Glossary, at 61.
15
 2 U.S.C. § 684(a).
16
 Id.
17
  Id. § 684(b). Programmatic delays are not impoundments and therefore do not need to
be reported. Programmatic delays arise because of factors outside the exclusive control of
the agency, such as a lengthy procurement. GAO, Impoundment Control: Deferral of DOD
Budget Authority Not Reported, GAO/OGC-91-8 (Washington, D.C.: May 7, 1991), at 3-4.




Page 4                                                                       GAO-12-675T
not authorized for policy reasons, i.e., just because the agency disagrees
with Congress’ priorities. 18

Under the other category of impoundments, proposed rescissions, the
President must transmit a special message to Congress whenever the
President determines that all or part of any budget authority will not be
required to carry out the full objectives or scope of the programs for which
it is provided, or that the budget authority should be rescinded for fiscal
policy or other reasons. 19 The special message must describe, among
other things, the amount of budget authority proposed for rescission and
the reasons it should be rescinded. 20 Any amount of budget authority
proposed to be rescinded must be made available for obligation unless
Congress, within 45 legislative days, completes action on a bill rescinding
all or part of the amount proposed for rescission. 21 Unless Congress
rescinds the budget authority in a public law, the agency must make the
funds available for obligation to carry out the purposes of the
appropriation.

GAO also has a role with respect to the Impoundment Control Act. The
Comptroller General is required to review each special message and
report his findings to Congress as soon as practicable. 22 The
Impoundment Control Act also requires the Comptroller General to report
to Congress any impoundment which the President has failed to report. 23
GAO monitors the status of affected funds as well as prepares statistical
summaries and analyses for Congress. 24




18
  GAO, President’s Third Special Impoundment Message for FY 1990, GAO/OGC-90-4
(Washington, D.C.: Mar. 6, 1990) (“Deferrals intended to further executive branch policies
or priorities in place of those policies established in the legislative process are, absent
specific statutory authority, unauthorized deferrals.”).
19
     2 U.S.C. § 683(a).
20
 Id.
21
 Id. § 683(b).
22
 Id. § 685(b).
23
 Id. § 686(a).
24
 See, e.g., B-321125, June 23, 2011.




Page 5                                                                         GAO-12-675T
Agencies must also continue to comply with the Impoundment Control Act
as they prepare for a possible sequestration. We have previously
concluded that an agency may not set aside funds 25 or intentionally slow
down spending 26 in anticipation of proposed cancellations or rescissions
of previously appropriated funds. If an agency proposes to defer the
obligation of funds in the wake of a possible sequestration, it would need
to show that the deferral met a statutory exception and it would need to
send a special message to Congress. 27

Agencies do have some experience in maintaining operations in uncertain
budget times. In the past decade, agencies have continued to carry out
their missions with temporary appropriations under continuing resolutions
for many months into the fiscal year. While continuing resolutions allow
agencies to continue operations at a certain rate, the agencies cannot
predict the amount of their final appropriation, which may be lower than
anticipated. 28 Similarly, if OMB implements sequestration for fiscal year
2013, agencies will have to absorb reductions beginning in the second
quarter of the fiscal year.




25
  B-307122, B-307122.2, Mar. 2, 2006. In October 2005, the President transmitted to
Congress a proposal to rescind $2.3 billion of available funding to offset the cost of
Hurricane Katrina relief. According to the President, the proposal called for cancellations,
not rescissions. GAO contacted each affected agency to determine whether it was
withholding budget authority in response to the President’s proposal. GAO found that
agencies withheld over $470 million in budget authority, affecting 12 programs, for
approximately two months. These withholdings constituted impoundments that should
have been reported to Congress under the Impoundment Control Act.
26
  B-320091, July 23, 2010. President Obama proposed the cancellation of the National
Aeronautic and Space Administration’s (NASA) Constellation program in his fiscal year
2011 budget request. In response to a congressional request, GAO determined that NASA
had not violated the Impoundment Control Act in its obligation of Constellation funds after
the release of the President’s budget request. NASA had not withheld funds from
obligation or slowed down its rate of spending in fiscal year 2010 in response to the policy
proposal.
27
  See 2 U.S.C. § 684(a).
28
  GAO has found that continuing resolutions limit management choices and result in
inefficiencies. GAO, Continuing Resolutions: Uncertainty Limited Management Options
and Increased Workload in Selected Agencies, GAO-09-879 (Washington, D.C.: Sept. 24,
2009).




Page 6                                                                          GAO-12-675T
“Program, Project, and      The Budget Control Act provides that sequestration for fiscal year 2013
Activity” (PPA) under the   will reduce each nonexempt account by a uniform percentage necessary
Budget Control Act          to achieve the calculated reduction for that fiscal year. 29 “Account” is
                            defined as “an item for which appropriations are made in any
                            appropriation Act and, for items not provided for in appropriation Acts,
                            such term means an item for which there is a designated budget account
                            identification code number in the President’s budget.” 30 The Budget
                            Control Act also instructs OMB to implement sequestration in accordance
                            with section 256(k) of the Balanced Budget and Emergency Deficit
                            Control Act. 31 This section states that except as otherwise provided, the
                            same percentage sequestration shall apply:

                                 “to all programs, projects, and activities within a budget account (with programs,
                                 projects, and activities as delineated in the appropriation Act or accompanying
                                 report for the relevant fiscal year covering that account, or for accounts not
                                 included in appropriation Acts, as delineated in the most recently submitted
                                 President’s budget).” 32

                            Under this framework, each budget account must be analyzed separately
                            to determine its component programs, projects, and activities, as such a
                            determination may require reference to the original appropriation act, to
                            accompanying reports, or to the President’s budget.




                            29
                              BBEDCA, § 251A(7)(A), added by BCA, § 302. Some programs are exempt from
                            sequestration or subject to a limited sequestration. The BBEDCA provides a list of
                            exemptions in section 255 and a list of special rules in section 256. These two BBEDCA
                            sections were most recently updated by the Statutory Pay-As-You-Go Act of 2010. Pub. L.
                            No. 111-139, title I, § 11, 123 Stat. 8, 23-29 (Feb. 12, 2010). For instance, a number of
                            mandatory programs are exempt from sequestration, including Social Security benefits
                            and Supplemental Nutrition Assistance Program (formerly known as the Food Stamp
                            Program). BBEDCA, §§ 255(a), 255(h). Additionally, funding for Medicare payments
                            cannot be cut by more than two percent. BBEDCA, § 251A(9), added by BCA, § 302.
                            30
                             BBEDCA, § 250(c)(11).
                            31
                             Id. § 251A(10), added by BCA, § 302.
                            32
                             BBEDCA, § 256(k).




                            Page 7                                                                          GAO-12-675T
In that regard, GAO’s definition of “program, project, or activity” in the
Budget Glossary may be useful to this analysis. The Budget Glossary
provides that a “program, project, or activity (PPA)” is:

     “an element within a budget account. For annually appropriated accounts, [OMB]
     and agencies identify PPAs by reference to committee reports and budget
     justifications; for permanent appropriations, OMB and agencies identify PPAs by
     the program and financing schedules that the President provides in the ‘Detailed
     Budget Estimates’ in the budget submission for the relevant fiscal year.” 33

For example, where Congress barred the National Aeronautics and
Space Administration (NASA) from using an appropriation for the
“termination or elimination of any program, project, or activity” of a
particular program, GAO found the relevant programs, projects, and
activities in NASA’s budget request. 34

History can also provide some insight into understanding definitions of
“programs, projects, and activities.” In 1986, the Balanced Budget and
Emergency Deficit Control Act required that the President sequester
funds in accordance with definitions of “program, project, and activity”
provided by the committees on appropriations. The fiscal year 1986
“program, project, and activity” definitions varied from agency to agency
and sometime within agencies from account to account. The definitions
were separated into categories corresponding to the different
appropriations acts, which generally tied them back to specific language
in the appropriations act and committee reports, similar to the Budget
Control Act provision. We noted in our review that despite the variety of
definitions, “most agencies had little difficulty in identifying information
sources needed to determine what programs, projects and activities
existed within a given account.” 35 We did identify ambiguities in various
definitions and some oversights and omissions in the way agencies
carried out the sequestration. In addition, some difficulties arose when the
language in the appropriations acts and committee reports did not
coincide with functional program or project information used by agency
budget officials for actual program execution and when the committee


33
 Glossary, at 80.
34
 B-320091, July 23, 2010.
35
 GAO, Compliance Report for FY 1986: Balanced Budget and Emergency Deficit Control
Act of 1985, GAO/OCG-86-2 (Washington, D.C.: Mar. 31, 1986), at 4.




Page 8                                                                       GAO-12-675T
reports did not reflect current programs and activities financed within the
account in question.

In the final analysis, the Budget Control Act vests in OMB the authority to
implement sequestration. The execution and impact of any spending
reductions will depend on the legal interpretations and actions taken by
OMB. To date, OMB has not issued any guidance to agencies on
preparing for implementation of the Budget Control Act or how it would
construe “program, project, and activity.”

If you or your staff have any questions about this testimony, please
contact me at (202) 512-5207 or polings@gao.gov. Contact points for our
Office of Congressional Relations and Office of Public Affairs are on the
last page of this statement. Susan J. Irving, Director for Federal Budget
Analysis, Julia C. Matta, Assistant General Counsel, Lauren Grossman,
Senior Staff Attorney, and Omari Norman, Senior Attorney, made key
contributions to this statement.

Thank you, Mr. Chairman. This concludes my prepared statement. I
would be happy to answer any questions that you or other members of
the Committee have at this time.




Page 9                                                            GAO-12-675T
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