Cash Management Improvement Act of 1990 (H.R. 4279)

Published by the Government Accountability Office on 1990-05-03.

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

                    United States General Accounting Office   /f/J      $0

 on Delivery        OF 1990 (H-R. 4279)
 Expected at
 1O:OO a.m.
 May 3, 1990

                    Statement    of
                    Jeffrey    C. Steinhoff,    Director
                    Financial    Management Systems and
                    Audit Oversight
                    Accounting    and Financial     Management       Division
                    Before the
                    Subcommittee    on Legislation and
                    National   Security
                    Committee on Government Operations
                    House of Representatives

 GAO/T-AFMD-90-21                                                      GAO FOG   160 w/871
Mr. Chairman               and Members of the                    Subcommittee:

          We are very             pleased          to    be here         today         and give      our     views        on
the      Intergovernmental                    Cash Management                 Improvement           Act     of     1990--
H.R.      4279--which             would        provide          legislative              changes     necessary            to
improve       federal           cash management'and                      help      ensure        equity      in funding
federal       programs            administered             by the            states.        The purpose             of    the
bill      is to      increase           the     efficiency              of    efforts       to manage cash
throughout           the    government              by adopting               intergovernmental                  financing
concepts           and procedures               developed           by the         State/Federal             Cash
Management           Reform        Task Force.

          GAO has long             called          for    strengthened                 cash management              and
fully      supports         the     intergovernmental                        financing        concepts           in H.R.
4279.        We previously               supported              these        concepts       in     1986,     when they
were part           of S. 2230,            and in         1987,         when we testified                  on S. 1381
before       the     Senate        Subcommittee                 on Government              Efficiency,
Federalism,           and the           District         of Columbia.1

          As noted         in    OMB's Management                   of the        United         States      Government,
Fiscal       Year       1990,     the      federal         government             has improved             management            of
it's      $2 trillion           cash       flow.         We see H.R.               4279 as an important
opportunity           to    continue            this     progress.               We also         believe         that     it    is
important           in another           respect;          it     is     a good example              of what            can be

l-Cash Management                Improvement             Act      of     1987      (S.     13811,     GAO/T-AFMD-
  87-17, July 22,                1987.
achieved           when state           and federal                representatives                work together              to
solve        a long-standing                 problem.


           H.R.      4279 addresses                 a long-standing                cash management                  problem
in      federal       programs         administered                  by the      states--ensuring                  that
neither           party      incurs         unnecessary              interest          costs.        The concerns               are
even more intensified                        during         periods          of high       interest            rates      and
budget        constraints.                  Both     federal          and state          officials             have      raised
objections            to    the     current          intergovernmental                   financing

          The federal              government           has been concerned                      about     states
drawing           down federal              funds     sooner          than      necessary          to    cover
disbursements               for     federal          programs,           thereby         profiting             from
interest           earned         by holding          federal          funds.           Under     the
Intergovernmental                   Cooperation              Act      (31 U.S.C.           65031,        the     federal
government            cannot        collect          interest          from      the     states         in these          cases.
To help           solve     this      problem,         the      federal          government             developed          cash
drawdown           techniques,              whereby         states       would     not      receive            federal       funds
until      their          checks      cleared         the      bank.         However,           these     techniques
presented           problems          for     many states              which      have      laws        requiring          that
sufficient            cash        be on hand before                  checks       are      issued.

.   .

                     Likewise,              the        states         have complained                        that         they      often      do not
        receive                federal          funds         soon enough                and must use their                            own cash           to
        finance                federal          programs,             sometimes                waiting             several          months        for
        reimbursement.                          When that             happens,             states            cannot          charge         the
        federal            government                  for     the         associated             interest                costs.

                     To seek             fair         and equitable                 solutions                to     these         problems,             and
        at    the         urging          of members of Congress,                                the         State/Federal                  Cash
        Management                 Reform         Task Force                 was formed                 in        1983.          The results             of
        its      excellent                work         is reflected                 in H.R.         4279.

                     The bill             would         amend the              Intergovernmental                           Cooperation              Act
        and establish                     a set         of     intergovernmental                         cash management                     policies
        and practices                     that         can (1)             govern        the     exchanges                 of      funds      between
        the      federal            and state                 governments                and      (2)        ensure          that       neither          the
        federal            nor      state         government                 benefit            or suffer                 financially             as a
        result            of     the      transfer             of cash            in support                 of     federal            programs--
        equity            is the          key.

                     For example,                 under             H.R.     4279:

                     --    Agency           heads            are     required            to minimize                 the        time       elapsing
                           between              the     transfer             of     funds        by Treasury                    and the        issuance
                           of payments                  by a state.                     States      are            also     required           to
                           minimize              the         time     between            the     receipt             of     federal          funds         and
                           issuance              of payments.

.   -

                   --    The Secretary               of the         Treasury            is to          issue      regulations                   that
                         require         a state           to pay interest                 on federal                  funds         that       are
                         received          in advance              of    need.          Conversely,               if     the         federal
                         agency        puts       the      state        in the         position          of having              to
                         disburse          its      bwn funds            for     program          purposes              in accordance
                         with        federal        law,      regulation,               or federal-state                       agreement,
                         the     state         is to be paid              interest          by the             federal

                 --      The Secretary               of the         Treasury            is to prescribe                   the         methods
                         of     paying         interest        between           the     states          and federal
                         government              while      ensuring           comparable               treatment              for     both

                 --      The federal              government             is    required           to     execute          grant
                         awards,         consistent            with       program          purposes             and regulations,
                         on a timely              basis      to     ensure        the      availability                  of     federal
                         funds        when needed            by a state               to make payments                    under             a
                         federal         program.            Interest            earned       by a state                 on refunds                of
                         grant        funds       is to be returned                     to the          federal          government.

                 The requirements                    of     H.R.        4279 apply          to     all         federal          programs.
        States          and the        federal           government            will      have      2 years             before          the
        interest          payment         procedures               go into        effect          to     give      the        parties            the
        necessary             time     to make improvements                       in cash management                          practices

and procedures                   and to put                into         effect            the        systems              needed       to
implement              the     interest              payment            provisions                   of this              section--a
measure         which          makes good sense.

          One significant                      difference                between               H.R.       4279 and the                    earlier
Senate         bills          (S.     1381 and S. 2230)                          is the              requirement                  that‘
Treasury          enter          into       an agreement                     with         each state                on how to
implement              the     requirements                  of    this          bill.               We think              that      this         is    a
good idea              since        there       are differences                           in how the                 states          finance
and operate              their            federal          programs.                  However,                the     bill         does      not
stipulate              what      happens             if    Treasury              and a state                   do not             reach      an
agreement.               The Subcommittee                         may wish                to        amend the              bill      to     address
this      problem.              One option                 could         be that               if      an agreement                  is     not
reached         within          the        a-year          implementation                           period,         Treasury              could
specify         the      implementing                     regulations                 until            an agreement                  is
forthcoming.                   Our expectation                     for        this         option             is    that          Treasury
would       negotiate               with       each state                in good faith                        and not             simply      wait           2
years       and then             force         its        procedures                upon a state.

          We believe                the     provisions                  of    H.R.          4279 are               fair       to the         states
and the         federal             government,               represent                  the         reasoned              judgment          of
federal         and state               task         force        members,               and will              resolve             a long-
standing          point         of      contention                between             the           federal         government               and the
states.           I would            also       like         to    point            out        that      the        purpose           of this
bill      is    not      to      raise         revenue            for        either            the      states             or the         federal
goxernment              but      rather         for        both         parties            to do the                best          possible             job

in managing          the     cash      resources            used for             federal          programs.

         The cash management                   improvements                called          for     in H.R.             4279 will
help     establish          equity         between     the         states         and the          federal
government.            If    the      states     pay the             federal         government                 very        little
or no interest,              this      should        mean that             the     states          are      only           drawing
down the cash when it                      is needed,            which       in     itself         saves         the        federal
government         interest          on its      borrowing                costs      or      results            in     increased
income      from     its      investments.             On the             other      hand,         if     the        federal
government         pays the           states     interest,                these      costs         are      offset            by
increased         federal          interest      earnings                and/or      reduced             federal
borrowing         costs      that      were the        result             of the        state           using        its      own
funds     on behalf          of     a federal         program.

         Mr. Chairman,              this      concludes           my remarks.                    We fully            support
the     concepts      in     H.R.      4279 and stand                    ready     to      work with             the
Subcommittee          as it         considers         the        bill.           We would          be pleased                 to
respond      to    any questions               you or members of the                             Subcommittee                may
have at this          time.