BNUMBER: B-276550
DATE: December 15, 1997
TITLE: [Letter], B-276550, December 15, 1997
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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. sec. 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. sec.
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, sec. 202(n)(1), 110 Stat. 3843-44 (1996);
see also Pub. L. No. 104-53, sec. 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 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, sec. 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, sec. 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 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. sec.
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. sec. 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. sec. 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. sec. 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. sec. 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
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. sec. 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.
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, 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
B-276550
DIGEST
In our opinion, section 204(g) of the Federal Property and
Administrative Services Act, 40 U.S.C. sec. 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. sec. 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).
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. sec. 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. sec. 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, sec.
4, 80 Stat. 309 (1966).
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).
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.