BNUMBER:  B-265727
DATE:  July 19, 1996
TITLE:  Securities and Exchange Commission-Reduction of
Obligation of Appropriated Funds Due to a Sublease

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Matter of:Securities and Exchange Commission-Reduction of Obligation 
          of Appropriated Funds Due to a Sublease

File:     B-265727

Date:     July 19, 1996
        
DIGEST

The United States Securities and Exchange Commission (SEC) may not 
reduce its obligation of appropriated funds resulting from a lease, 
and correspondingly increase its available appropriations, by 
subleasing space and arranging for the sublessee to make its payments 
directly to the landlord.  The SEC should deposit the amount paid by 
its sublessee, whether paid to the SEC or the landlord, into the 
Treasury as miscellaneous receipts.

DECISION

The United States Securities and Exchange Commission (SEC) requests 
our opinion on whether it may reduce its obligation of appropriated 
funds for a lease to reflect the reduced rent the SEC pays as a result 
of a sublease.  Consistent with SEC's lease with the landlord, the 
landlord accepts payments from the SEC's Recreation and Welfare 
Association (RWA) under its sublease with the SEC, and the SEC reduces 
its rental payments to the landlord by the amount the RWA pays.  The 
SEC has been reducing its obligation of appropriated funds by the 
amount its sublessee pays the landlord to in effect reflect the SEC's 
net rental payment instead of the rental payment required by the 
lease.  As discussed below, we conclude that under the terms of the 
current lease, the SEC's treatment of its sublessee's payments 
improperly augments its appropriation and the SEC should deposit the 
reduction in its rental payments into the Treasury as miscellaneous 
receipts.

Background

A lease between the SEC and the Judiciary Plaza Limited Partnership 
(landlord) included the entire parking garage beneath its headquarters 
office building.  The SEC did not intend to use the entire garage but 
wanted for security reasons to limit access to the garage and hence 
the building to SEC employees.  The lease became effective October 1, 
1993, and currently expires December 31, 1997.

Prior to the SEC leasing the entire parking garage, the RWA, a 
nonprofit corporation made up exclusively of SEC employees, had an 
agreement for a certain number of discounted rate parking spaces with 
the company operating the parking garage.  The RWA then made these 
spaces available to SEC employees on a first-come, first-served basis.  
Of the amount it charged the employees, the RWA retained an 
administrative fee and paid the balance to the parking garage 
operator.

After the SEC leased the entire parking garage, the SEC provided free 
parking to employees with severe disabilities, executives and 
employees eligible based on job- related requirements, and SEC 
carpools and contractors.  The SEC also agreed to accommodate the 45 
employees who had been paying $100 per month to park through the RWA.  
From October 1993 through March 1994, the RWA held in a separate 
account the $100 per month it continued to collect from each employee 
parking in the garage through the RWA.  After deducting a 15 percent 
administrative fee for running the parking program and paying certain 
taxes, the RWA subsequently paid the remaining funds to the SEC, which 
were forwarded to the United States Treasury. 

A new arrangement began in April 1994.  The SEC's lease allows the SEC 
to sublease and provides that at the SEC's request, the landlord will 
accept directly from a sublessee the payments a sublessee is required 
to make.  The landlord credits the sublessee's payments to the rental 
the SEC is otherwise required to pay and the SEC's future rental 
payments to the landlord are reduced by the amounts so credited.  The 
RWA entered into a month-to-month sublease with the SEC for up to 70 
parking spaces for $85 per month.  The RWA would continue to charge 
SEC employees $100 a month and retain $15 per month.  However, under 
the sublease, the RWA would pay the remaining $85 directly to the 
landlord.  The sublease was amended on April 11, 1995, to reduce RWA's 
payment to the landlord to $80 per space per month.  The amended 
sublease explicitly provides that the SEC is responsible for 
authorizing and issuing the applicable parking permits to RWA, and for 
monitoring the proper use of the permits.  The term of the sublease is 
month-to-month and the sublease can be terminated by either the SEC or 
the RWA.  After the RWA began making payments directly to the 
landlord, the SEC began obligating appropriated funds on the basis of 
the rental payments it actually made to the landlord after being 
credited for its sublessee's payments instead of the amount of the 
rent called for in the lease.

Discussion

Unless otherwise authorized, agencies must deposit all funds received 
for the use of the United States in the general fund of the Treasury 
as miscellaneous receipts.    31 U.S.C.  sec.  3302 (1994).  Failure to do 
so constitutes an improper augmentation of the agency's appropriation.  

Under the SEC's lease with the landlord and sublease with RWA, the 
landlord continues to make the entire garage available to the SEC, the 
SEC retains control over the parking spaces, the SEC determines the 
amount RWA will pay for such spaces, and, notwithstanding the 
sublease, the SEC remains liable to the landlord for the rent of the 
entire parking garage should RWA not make its payment under the 
sublease.  In the final analysis, the SEC's legal rights and 
obligations vis-a-vis the landlord are in substance unaffected by the 
sublease.  Yet, instead of the SEC's appropriation bearing the entire 
rent the landlord charges the SEC for leasing the garage, the SEC 
obligates its appropriation in the amount of the rent as reduced by 
any amounts paid by RWA.  The SEC previously treated payments it 
received directly from RWA for parking spaces as money received for 
the use of the United States to be properly deposited into the 
Treasury as miscellaneous receipts under 31 U.S.C.  sec.  3302.  Under the 
current arrangement, the SEC's appropriation is benefiting from the 
sublease in the same amount as it would if the SEC was authorized to 
credit its appropriation with any payments the SEC collected directly 
from the RWA.  In this regard, the SEC clearly is augmenting its 
appropriation by reducing the obligation charged to the appropriation 
by the amount the SEC's sublessee pays the SEC's landlord.  The next 
question is whether the augmentation is improper.

An exception to the general rule against augmenting an agency's 
appropriation includes receipts that qualify as refunds to an 
appropriation.  Refunds may be retained to the credit of the 
appropriation and are not required to be deposited into the general 
fund of the Treasury.  65 Comp. Gen. 600 (1986).  

The SEC argues that the situation here is akin to a refund because if 
it paid its entire rent to the landlord, the landlord would then pay 
the SEC a refund in the amount the landlord received from the 
sublessee.  The SEC analogizes the landlord's agreement to permit the 
SEC to sublease and receive a credit in the amount the sublessee pays 
the landlord to a contract adjustment or price renegotiation that 
either results in a refund or otherwise reduces the government's 
obligation.  Because refunds and reductions in contract obligations 
result in increasing available appropriations, the SEC proposes a 
similar treatment here.  

The SEC's Office of Inspector General (OIG) reached a contrary view in 
its report, Parking Garage Space Allocation and Usage, OIG-154, April 
14, 1995.  The OIG disagreed with the SEC's arguments and concluded 
that the SEC was improperly augmenting its appropriation just as if 
the SEC was directly receiving and retaining the sublessee's rental 
payments.  We agree with the OIG.

In situations where we treated a contract adjustment or price 
renegotiation as a refund that could be credited to an appropriation 
like those cited by the SEC,[1] the "refund" reflected a change in the 
amount the government owed its contractor based on the contractor's 
performance or a change in the government's requirements.  In 
contrast, the SEC has not changed its determination that it has a need 
to limit access to its headquarters (and garage) for security reasons 
and, to meet that need, its control over and responsibility for the 
entire garage under the lease has not changed.  The space the landlord 
provides the SEC, and the rent the SEC is required to pay for that 
space, has not changed by virtue of the RWA receiving and paying for 
some of the parking spaces acquired from the landlord by the SEC.

The SEC also argues that its sublease to a third party of an interest 
it acquired from another contractor at essentially the same price is 
analogous to the contract arrangement in 7 Comp. Gen. 391 (1927), in 
which we approved crediting an appropriation for reductions in the 
government's liability.  We believe the SEC misapprehends the import 
of our 1927 decision as it applies to the SEC's situation.

That decision involved an agreement between Yosemite National Park and 
its road contractors in which the Park would supply the contractors 
with electricity from  the Park's power plant.  Contracts between the 
Park and its road contractors were charged to the roads-and-trails 
appropriation and the contractors deducted from their monthly vouchers 
the cost of electricity provided to them.  The cost of generating the 
electricity provided to the contractors was charged to the regular 
park appropriation available for the operation and maintenance of the 
Park.  However, the Park plant was not always able to supply the 
necessary amount of electricity to the road contractors.  To fulfill 
its obligation to the contractors, the Park purchased electricity from 
a private company and charged the cost to the regular park 
appropriation.  

The Comptroller General concluded that the deductions made from the 
contractors' vouchers may not be used by the roads-and-trails 
appropriation to reimburse the appropriation for the cost of 
electricity generated by the Park's power plant, but instead should be 
deposited into the Treasury.  The sale of electricity produced by the 
Park's power plant was a revenue of the Park and a statute explicitly 
required the deposit of revenues of the national parks into the 
Treasury as miscellaneous receipts.  7 Comp. Gen. at 393.  However, 
the Comptroller General approved crediting the park appropriation with 
amounts deducted from the contractors' vouchers for furnished 
electricity when the Park purchased the electricity from private 
companies rather than generating it from the Park power plant "and the 
regular park appropriation had originally been charged with the cost" 
of the purchase.  7 Comp. Gen. at 393-394.  

The SEC argues that since "GAO determined that Treasury was not 
entitled to receive any money" in this decision, Treasury is not 
entitled to receive any money in the present situation.  However, as 
discussed above, Treasury did receive the contractor deductions when 
they reflected the cost of Park-generated electricity.  The reason 
some reimbursement of the park appropriation was allowed is that in 
those instances when the Park appropriation had been charged for 
purchasing electricity, the failure to reimburse would result in the 
park appropriation subsidizing a contract properly funded by the 
roads-and-trails appropriation.  Where reimbursement was allowed, the 
net result was that the road-and-trails appropriation bore the entire 
cost of what was contemplated by the contract-an amount paid to the 
contractors and an amount paid for electricity to be furnished to the 
contractors.

The SEC's situation does not present such an issue.  The SEC's 
proposal is not designed to address which appropriation bears the 
entire cost of the government's obligation.  Conversely, the SEC's 
proposal is designed to result in obligating its appropriation in an 
amount less than the cost of its lease for the entire garage even 
though the SEC through its lease controls the entire garage.  

Accordingly, we conclude that absent statutory authority to retain 
such amounts, the SEC's use of amounts paid by its sublessee under the 
current lease arrangement to reduce the obligation created by the 
SEC's lease with the landlord constitutes an improper augmentation of 
its appropriation.  The SEC must deposit the amounts paid by the SEC's 
sublessee, whether paid to the landlord or the SEC, as miscellaneous 
receipts into the Treasury.  

Robert P. Murphy
General Counsel

1. The SEC cites a line of Comptroller General decisions to support 
its argument that the contract adjustment is a refund.  See 34 Comp. 
Gen. 145 (1954) (refund under a guarantee-warranty clause); 33 Comp. 
Gen. 176 (1953) (contractor's refund under a price redetermination 
clause); and 27 Comp. Gen. 384 (1948) (credit allowance received for 
defective part).  In these cases, the amounts received were not 
improper augmentations of agency appropriations because they were 
adjustments in previous payments made by the agencies for which they 
bargained for under the original contracts.