BNUMBER:  B-260990
DATE:  June 13, 1996
TITLE:  Department of Labor-Cap on Administrative Expenses Under Job
Training Partnership Act

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Matter of:Department of Labor-Cap on Administrative Expenses Under Job 
          Training Partnership Act

File:     B-260990

Date:June 13, 1996

DIGEST

Under the Job Training Partnership Act (JTPA or Act), Public Law 
97-300,   October 13, 1982, the Department of Labor (DOL) obligates 
training funds and allots those funds to states and territories.  
Section 161(b)(1) of JTPA makes such funds available for expenditure 
by "service delivery areas" (SDA) for 3 program years.  Section 108 of 
JTPA requires charging of grant funds "for any program year" to 
appropriate cost categories.  DOL regulations implement these statutes 
by providing that states and SDAs "shall have the 3-year period of 
fund availability to comply with the cost limitations in section 108 
of the Act."  20 C.F.R.  sec.  627.445(c)(2) (1995).  The effect of this 
regulation is to permit funds set aside for administration, from any 
program year allocation, to be used for any administrative cost during 
the 3-year life of an appropriation, provided the percentage 
limitation ultimately is satisfied.  This regulation is consistent 
with the Act.

DECISION

This is in response to a request from the Inspector General of the 
Department of Labor (DOL) for a decision relating to the DOL's 
interpretation of a statute which limits state and local program 
administrative costs to not more than 20 percent of the funds provided 
in a single appropriation act to the local programs under the Job 
Training Partnership Act (JTPA or Act).  DOL interprets this provision 
as requiring only that the local program administrators not spend more 
than 20 percent of the total funds on administrative costs over the 
3-year period of availability of the funds.  The Inspector General 
interprets the statute as imposing a 20 percent administrative cost 
limitation on funds expended in each of the 3 years that funds remain 
available to the local program.  For the reasons that follow, we 
believe that the DOL's interpretation is reasonable.

Background

The Job Training Partnership Act, Public Law 97-300, October 13, 1982, 
96 Stat. 1324, as amended, provides job training and employment skills 
to economically disadvantaged individuals.  Although the Department of 
Labor has overall responsibility for implementation of the Act, 
provision of services under the Act is highly decentralized, with most 
participants receiving job training services through programs 
administered by the 56 states and territories and over 600 local 
programs called service delivery areas (SDA).  The Inspector General's 
request for a decision specifically concerns Title II-A of the Act, 
which authorizes adult and youth programs, although, as he points out, 
the same legal principles would apply to other JTPA grant programs 
with similar statutory authority.

Under the mechanism established by the Act, the Department of Labor 
obligates Title II-A funds and allots those funds to states and 
territories, in accordance with a fixed formula.  JTPA  sec.  201; 29 
U.S.C.  sec.  1601.  DOL allots funds on a July 1 through June 30 "program 
year" basis, consistent with section 161(a) of the Act, which provides 
that funds "shall be available for obligation only on the basis of a 
program year" and that the program year "shall begin on July 1 in the 
fiscal year for which the appropriation is made."  JTPA  sec.  161(a); 29 
U.S.C.  sec.  1571(a).  See also 20 C.F.R.  sec.  627.405.

The governor of the state or territory then allocates Title II-A funds 
to SDAs within the state or territory.  JTPA  sec.  202; 29 U.S.C.  sec.  1602.  
See 20 C.F.R. Part 628, Subpart C (1995).  Under section 164 of the 
Act, each state or territory is required to establish "such fiscal 
control and fund accounting procedures as may be necessary to assure 
the proper disbursal of, and accounting for, federal funds paid to the 
recipient under titles II and III" of the Act.  Section 165 of the Act 
requires SDAs to keep records that are sufficient to permit the 
preparation of reports required by the Act "and to permit the tracing 
of funds to a level of expenditure adequate to insure that the funds 
have not been spent unlawfully."  JTPA  sec.  165(a)(1); 29 U.S.C.  sec.  
1575(a)(1).  SDAs also are required to submit quarterly financial 
reports that "include information identifying all program costs by 
cost category in accordance with generally accepted accounting 
principles and by year of the appropriation."  JTPA  sec.  165(f)(1); 29 
U.S.C.  sec.  1575(f)(1).  See 20 C.F.R.  sec.  627.445 (1995).

Expenditure of funds by SDAs is governed chiefly by two statutes.  The 
first is section 161(b)(1) of JTPA, which provides that funds 
obligated under the Act "for any program year may be expended by each 
recipient during that program year and the two succeeding program 
years . . . ."  JTPA  sec.  161(b)(1); 29 U.S.C.  sec.  1571(b)(1).  This 
provision makes funds provided under the Act, including Title II-A 
funds, available for expenditure by SDAs for 3 program years.  As a 
consequence, as the Inspector General points out, "a JTPA grant 
recipient or subrecipient may have funds available from three 
different appropriations at any point in time."

The second is section 108, which requires charging of grant funds to 
appropriate cost categories.  JTPA  sec.  108; 29 U.S.C.  sec.  1518.  Sections 
108(b)(4) and (6) provide:

"(4) Of the funds allocated to a service delivery area for any program 
year under parts A or C of title II-

     "(A) not more than 20 percent shall be expended for the costs of 
     administration; and

     "(B) not less than 50 percent shall be expended for direct 
     training services.

* * *

"(6) For purposes of paragraph (4), the term allocated means allocated 
for a program year, as adjusted for reallocations and reallotments 
under section 109 and for transfers of funds under sections 206, 256, 
266."

JTPA  sec.  108(b)(4), (6); 29 U.S.C.  sec.  1518(b)(4), (6).  (The specific 
sections of the Act referred to in section (b)(6) relate to 
adjustments made by DOL or the governors, not to funds carried over 
under the 3-year availability of funds authorized by paragraph 
161(b)(1).)

According to the submission of the Inspector General, as costs are 
incurred by SDAs, each cost category is charged for its share of 
costs.  Although SDAs are likely to have most of a current program 
year's allocation expended at the end of the first program year, any 
unexpended balances are carried forward into the second year and costs 
continue to be charged to each category, usually on a first-in, 
first-out (FIFO) basis.

General Question

The general question submitted by the Inspector General is "how to 
reconcile the   3-year spending period authorized under Section 161(b) 
with the 20 percent administrative cost limitation found in Section 
108(b)."  The Inspector General poses the following illustrative 
scenario:

     "Using the FIFOing by cost category process described above, at 
     some point (usually early in the second year) the year 1 funds in 
     the account budgeted for administration could be exhausted, while 
     unexpended year 1 funds may remain in the other two budget 
     accounts.  The question is whether year 2 funds budgeted for 
     administration can be used to cover the costs of administering 
     activities/projects for which the non-administrative costs are 
     continuing to be charged to the other year 1 budget accounts 
     (direct training services and training-related and supportive 
     services)."

DOL Regulations

DOL regulations implementing the JTPA address this issue by explicitly 
providing that states and SDAs "shall have the 3-year period of fund 
availability to comply with the cost limitations in section 108 of the 
Act."  20 C.F.R.  sec.  627.445(c)(2) (1995).  The effect of this 
regulation is to permit funds set aside for administration from any 
program year allocation to be used for any administrative cost during 
the 3-year life of an appropriation, provided the percentage 
limitation ultimately is satisfied.  In the scenario posed by the 
Inspector General above, for example, year 2 funds budgeted for 
administration could be used to support activities and projects the 
program cost of which is funded with year 1 funds, as long as overall 
no more than 20 percent of year 2 funds are applied to administrative 
costs.

The Inspector General has provided us with a memorandum by the 
Associate Solicitor, Division of Employment and Training Legal 
Services, that takes the following position:

     "In sum, we have identified two legally acceptable approaches to 
     carrying over JTPA funds within the three-year life of a JTPA 
     appropriation.  We believe the better interpretation of the 
     statute allows unspent program money from a previous year to be 
     supported by administrative money funded by the subsequent year's 
     appropriations as long as the expenditures benefit the same cost 
     objective or program.  On the other hand, although the statute 
     does not require a result which provides that only unspent 
     administrative money carried over from a previous year can be 
     used to administer program money carried over from that year, 
     such a result, although programmatically restrictive, would not 
     result in a violation of the Act."  [Footnote omitted.]

The Inspector General essentially has asked whether DOL's 
interpretation of JTPA, as reflected in the Associate Solicitor's 
memorandum and in paragraph 627.445(c)(2), is consistent with law.  We 
conclude that it is.  We start with the principle that interpretation 
of a statute, by regulation or otherwise, by the agency Congress has 
charged with the responsibility for administering it, is entitled to 
considerable weight.  Chevron, U.S., Inc. v. Natural Resources Defense 
Council, Inc., 467 U.S. 837 (1984); 48 Comp. Gen. 5 (1968).  Our role 
in this case, accordingly, is limited to determining whether DOL's 
interpretation of the statute is reasonable; it does not extend to 
determining whether DOL has adopted the best possible policy in 
implementing the statute.  Chevron, 467 U.S. at 842, 843.  As set 
forth below, we conclude that DOL's interpretation of the 
interrelationship between section 161 and section 108 of the JTPA is 
reasonable and that DOL's implementation of those sections at 20 
C.F.R.  sec.  627.445(c)(2) is consistent with JTPA.

Statutory Analysis

A relatively straightforward statutory analysis of the text of the key 
statutes supports DOL's interpretation.  Paragraph 108(b)(4), which 
establishes the cost category allocations, refers to funds "allocated" 
to a service delivery area "for any program year."  It does not refer 
to funds "expended," and does not refer to funds "in any program 
year."  Although the term "program year" is not defined in JTPA, the 
language of paragraph 108(b)(4) is consistent with the language of 
paragraph 161(b)(1), which provides that funds "for any program year" 
shall be available for expenditure for 3 years.  Furthermore, there is 
nothing in the text of either statute that requires that the cost 
percentages set forth in section 108 be satisfied in each of those 3 
years. 

Legislative History

The legislative history supports this interpretation.  Public Law 
102-367, Sept. 7, 1992, amended section 108 to refer to "funds 
allocated to a service delivery area for any program year" that are 
"expended for administration."  Prior to the 1992 amendment, section 
108 provided, "Not more than 15 percent of the funds available to a 
service delivery area for any fiscal year for programs under part A of 
Title II of this Act may be expended for the cost of administration."  
29 U.S.C.A.  sec.  1518(a) (1985) (emphasis added).  One purpose of the 
1992 amendments was to clarify how the cost limitation was to be 
applied.  The House report explained the change as follows:

     "The Committee bill applies cost limitations to funds 'allocated 
     for any program year' rather than to 'available' funds under 
     current Title II law, or 'expended' funds under current Title III 
     law.  This change is intended to clarify that the limit applies 
     to funds allocated for a program year and continues to apply to 
     the same year's allocated funds over the subsequent two years 
     during which those funds are authorized to be expended.

     "Some confusion has arisen over the term 'available funds' under 
     Title II as to whether the limitations apply to new funds, 
     consisting of carry-in funds plus the new program year's 
     allocations, available for each year.  This is not the 
     Committee's intent, and the new legislative language, 
     complemented by the recordkeeping provision added in section 165 
     requiring that records be maintained showing program costs in 
     appropriate categories by year of appropriation, should clarify 
     this requirement."

H.R. Rep. No. 240, 102d Cong., 2d Sess. 72 (1991) (emphasis added).

This passage evidences Congress' intent that the cost category 
allocation requirements be satisfied over the 3-year life of an 
appropriation.  This is even more clearly reflected in the JTPA 
conference report.  The conference report explained further:

     "The Conferees adopt the House Bill provision in recognition of 
     the planning difficulties substate grantees have had under 
     current law. . . . [S]ubstate grantees will be required to comply 
     with the cost category limits on a program year basis.  Thus, the 
     appropriate period of compliance with the cost category limits 
     for a particular program year will be the period for which funds 
     allocated for such program year are available.

     "The Conferees amend the House Bill to make clear that for 
     purposes of this section, the term 'allocated' is intended to 
     refer to the final allocation a substate grantee receives for a 
     given program year, adjusted upwards or downwards as appropriate 
     following any reallocation to or from such substate grantee for 
     that program year."

H.R. Rep. No. 811, 102 Cong., 2d Sess. 130-31 (1992) (emphasis added).

Accordingly, we believe that the legislative history of the 1992 
amendments to section 108 supports the view that the cost allocation 
requirements of that section are intended to apply over the full 3 
years of fund availability.  This is consistent with DOL's 
implementation of section 108 at 20 C.F.R.  sec.  627.445(c)(2).

This interpretation is supported by other changes to JTPA by the 1992 
amendments.  Public Law 102-367 also amended section 165 of the JTPA, 
29 U.S.C.  sec.  1575, concerning reports, recordkeeping, and 
investigations.  Subsection 165(f) requires that reports by substate 
grantees and service delivery areas "include information identifying 
all program costs by cost category in accordance with generally 
accepted accounting principles and by year of the appropriation."  
This serves as a further indication that Congress intended that the 
cost category percentage requirements of section 108 apply over the 
full 3-year period of availability of Title II-A funds.    

Accordingly, we conclude that DOL's interpretation of the JTPA as 
implemented at 20 C.F.R.  sec.  627.445(c)(2) is consistent with the Act.  
We recognize that this result would permit the use of administration 
funds provided in one year's appropriation to be used to support 
program funds provided in another year's appropriation, as illustrated 
by several hypothetical questions presented by the Inspector General.  
We do not find that inconsistent with the statutory scheme, especially 
in view of the fact that, according to the Inspector General, most of 
the funds are expended at the local program level in the first program 
year.

Potential Abuses in Implementation

The Inspector General suggests the possibility that implementation of 
section 108 in a way that permits SDAs to exceed the category 
percentage limitations in any given year of availability might be 
objectionable, since it is inconsistent with the "matching principle," 
i.e., the principle that the administrative costs of a project or 
activity should be matched with the nonadministrative costs.  This 
could result in cost reports that "understate (or overstate) the 
'true' administrative costs associated with program activities funded 
under the same year's appropriation," "result in inconsistent 
treatment of costs as well as costs being shifted to a subsequent 
appropriation/grant in violation of the JTPA cost principles," or mask 
"the true costs of administration" and defeat "the congressional 
intent and purpose of the cost limitations."

We note that the possible abuses suggested by the Inspector General do 
not go to the legality of implementation of section 108 by DOL, but 
rather to the accounting and auditing difficulties that such 
implementation might create.  Although these concerns may prove to be 
well-founded, they do not require a finding that DOL's implementation 
of the Act is illegal.

Nonetheless, as noted by the Associate Solicitor, although DOL's 
implementation of sections 161 and 108 of the JTPA at 20 C.F.R.  sec.  
627.445(c)(2) is consistent with the JTPA, it is not required by the 
JTPA.  DOL could require that the percentage limitations of section 
108 be applied in each of the 3 years of fund availability under 
section 161, based on its responsibilities under the JTPA to ensure 
proper fiscal and accounting controls.  JTPA  sec.  162; 29 U.S.C.  sec.  1574.
 
Further, section 165(b)(3)(D) of the JTPA, 29 U.S.C.  sec.  1575(b)(3)(D), 
provides that nothing in that Act "shall be construed so as to be 
inconsistent with the Inspector General Act of 1978 or government 
auditing standards issued by the Comptroller General."  Under section 
163 of JTPA, DOL is authorized to monitor compliance with the Act and 
to investigate possible violations.  JTPA  sec.  163; 29 U.S.C.  sec.  1573.  
See generally "Government Auditing Standards," GAO/OCG-94-4, June 
1994.  The Inspector General has a statutory obligation under section 
4 of the Inspector General Act to provide policy direction, to review 
regulations, and to recommend policies with respect to the promotion 
of economy and efficiency of DOL programs.  5 U.S.C. App. 3,  sec.  4 
(1994).

Accordingly, if the abuses suggested by the Inspector General above in 
fact occur, then both DOL and the Inspector General can take 
corrective action within their respective oversight and audit 
responsibilities.  Further, DOL can take immediate action by reviewing 
its internal control procedures to ensure that the abuses suggested by 
the Inspector General do not occur.

/s/Robert P. Murphy
for Comptroller General
of the United States