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OFFICE OF THE SECRETARY OF TRANSPORTATION,

Washington, D.O., April 28, 1969. Hon. SAM J. ERVIN, Jr., Chairman, Subcommittee on Separation of Powers, Committee on the Judiciary, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: This is in response to your letters of February 5 and March 13 requesting information relating to instances since 1945 in which funds appropriated to Department programs have been impounded or deferred by order of the Bureau of the Budget or the President.

Although we did not become a Department until April 1967, we asked those administrations that existed as separate entities before the Department was formed to search the records that are still available. The National Transportation Safety Board was advised that any reportable items pertaining to those activities previously in the Civil Aeronautics Board will be included in the CAB report, if applicable. The Federal Aviation Administration, the Federal Railroad Administration, the St. Lawrence Seaway Development Corporation and the Urban Mass Transportation Administration had no reportable items.

In addition to the basic data requested and the history of the funding of the Highway Trust Fund since 1966, which is enclosed, you asked for the following documents which were submitted to the joint hearings of the Committees on Public Works in February 1967 :

(1) Memorandum from Acting Attorney General Clark to Secretary of Transportation Boyd on the legality of the November 1966 order to "freeze" funds of the Highway Trust Fund;

(2) The November 1966 order of Secretary of Transportation Boyd (Note: This order was issued by Rex M. Whitton, Federal Highway Administrator at that time); and

(3) Document from Director of the Bureau of the Budget Shultz listing "150" steps taken between June 1966 and February 1967 to defer or postpone certain obligations, of which the Highway Fund deferment was one.

Copies of the first two documents were available and are enclosed. We do not have a copy of Director Shultz's document and suggest you request a copy from the Bureau of the Budget.

Enclosed are those instances that appear to meet the criteria established in your letter of February 5. Our records do not make a distinction between Bureau of the Budget and Presidential actions on placing reserves in the various appropriations, so we have combined the first two categories. We have no record of any reserves established by the Bureau of the Budget under the Anti-Deficiency Act.

Your request specifically asked for FY 1969 appropriation rescission data. The only rescission in FY 1969 for the Department of Transportation was $30,000,000 from Federal Aviation Administration's Civil Supersonic Aircraft Development appropriation. However, this rescission was not the result of "the withholding of appropriated funds from government agencies by direction of the President" but was rescinded by Congress as part of the Department of Transportation Appropriation Act of 1969, Public Law 90-464 (82 STAT. 654).

Based on the criteria established in your letter of February 5, we have not included funds put into reserves that fall into the following categories:

(1) Funds put into reserve in compliance with Congressional directives, i.e., Public Laws 90–218 and 90-364,

(2) Amounts placed in reserve to reflect savings achieved through improved management techniques, and

(3) Amounts placed in reserve for subsequent years due to late passage of legislation, delays in construction, delays in procurement, etc.

We trust that the data contained herein is responsive to your request. Inasmuch as the Department is only two years old, and many of the functions and activities were parts of other Departments and Agencies, we have some difficulties in locating records. If you have any additional questions, please contact the Director of Budget, Mr. Robert G. Prestemon. Sincerely,

CHABLES D. BAKER.

EXHIBIT I
DEPARTMENT OF TRANSPORTATION, DATA REGARDING APPROPRIATIONS, APPORTIONMENTS, RESERVES, AND

RESCISSIONS
(For Senator Sam Ervin, Jr., Chairman, Subcommittee on Separation of Powers)

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69–20X8102(05)-Federal Aid Highways, 818,000,OCO Amount reserved in recognition of the need Trust Fund.

for reducing nonmilitary Federal expenditu res as a contribution to the Vietnam effort and the resultant program to reduce

inflationary pressures. ........ 578,000,000 Amount reserved for control of inflationary

pressures.

1968.

EXHIBIT 2

DEPARTMENT OF TRANSPORTATION
FEDERAL HIGHWAY ADMINISTRATION

FEDERAL-AID HIGHWAYS
HISTORY OF FUNDING PROGRAM

FROM NOVEMBER 1966 TO DATE In November 1966, the President directed a deferral of obligations for construction programs including the Federal-aid Highway program in recognition of the need for reducing non-military Federal expenditures as a contribution to the Vietnam effort and to reduce inflationary pressures. Since then successive releases of those funds were made in the following amounts and on the following dates : $750 million on January 1, 1967, $175 million on February 28, 1967, $1,100 million on April 1, 1967, and $515 million on April 10, 1967. This released all funds authorized through the 1968 apportionment except $2,089 million. On July 1, 1967 $1,614 million was released. As of the start of fiscal year 1968, $475 milion was unreleased.

In January 1968 the national program for control of inflationary pressures required a reduction of $600 million from the projected level of obligations intended to have been incurred during the calendar year 1968.

The $600 million figure was to be absorbed in the amount of $350 million during the first half of the 1968 calendar year and $250 million in the second half.

Accordingly, each State was limited to 95% of the amount obligated during calendar year 1967 or a total of $4,115.

In order to reduce $200 million in fiscal year 1969 expenditures under the Revenue and Expenditure Control Act of 1969, obligations were suspended on September 7, 1968 until December 1968. The States were allowed to obligate $100 million in December 1968 and to obligate $600 million for each succeeding month in fiscal year 1969 to bring the total obligations to the original estimate of $4,769 million.

EXHIBIT 3 OPINION OF THE ATTORNEY GENERAL OF THE UNITED STATES FEDERAL-AID HIGHWAY ACT OF 1956-POWER OF

PRESIDENT TO. IMPOUND FUNDS Appropriation acts are of a fiscal and permissive nature. They authorize but

do not compel the executive branch to expend funds. Under the Federal-Aid Highway Act of 1956 (June 29, 1956, c. 462, 70 Stat.

378, as amended, 23 U.S.C. 101 note), the States have no inchoate right to funds apportioned to them prior to the actual approval of a project by the

Secretary of Transportation. The hortatory declaration of congressional policy set forth in 23 U.S.C. 101 (b)

does not constitute a mandate to approve all qualifying projects for which funds are available. The highway taxes imposed under the Highway Revenue Act of 1956 (June

29, 1956, c. 462, 70 Stat. 387, 397) are not paid directly into the Highway Trust Fund, and the assets in that fund are neither directly nor automatically available for the payment of Federal contributions to the States. The President has the power to impound Federal-aid highway funds after they

have been apportioned to the States but before they have become obligated as the result of the approval of a specific qualifying project.

FEBRUARY 25, 1967. THE SECRETARY OF TRANSPORTATION.

DEAR MR. SECRETARY: This is in reply to your letter of February 21, 1967, requesting my opinion as to the legality of a reduction in the amount of Federal-aid highway funds which may be obligated during the Fiscal Year ending June 30, 1967.1

The facts underlying your inquiry are as follows: President Johnson's message to Congress of September 8, 1966, Transmitting Proposals for Measures for Curbing Inflation and Preserving our National Economy, announced that a reduction or deferral of lower priority Federal expenditures by approximately $3 billion was required in order to assure the continuing health and strength of our economy (H. Doc. 492, 89th Cong., 2d sess., pp. 1, 4). Pursuant to this mandate the Director of the Bureau of the Budget by letter dated November 7, 1966, advised you, in your then capacity of Under Secretary of Commerce for Transportation, that the Federal-aid highway program would have to bear a fair and feasible share of the deferrals.

In line with subsequent discussions with and instructions from the Bureau of the Budget, the Federal Highway Administrator advised his division and regional engineers on November 23, 1966, that the Federal-aid highway program was being limited to $3.3 billion in total project obligations during Fiscal Year 1967. The instructions indicated that the limitation was in recognition of the need for reducing non-military Federal expenditures in order to curb inflationary pressures.

Prior to this action it was anticipated that $4 billion would be made avail. able for obligation during Fiscal Year 1967. The effect of the action is to defer to fiscal years subsequent to fiscal 1967 the obligation of funds in excess of $3.3 billion for Federal-aid highway projects. The reduction of funds was limited to the approval of future projects and did not affect the availability of funds for projects which already had been approved and which, pursuant to 23 U.S.C. 106(a), constitute contractual obligations of the United States.

An understanding of the legal problems raised by your inquiry will be facilitated by an outline of the pertinent provisions of the Federal-aid highway program. The program involves successive, and distinct, stages of authorizetions, apportionments, programs, projects and appropriations.

The basic authorizations for appropriations for the Interstate Highway system relating to the 15-year period ending with Fiscal Year 1972 may be

1 Although the Department of Commerce is still technically responsible for the administration of the Federal-aid highway program, 23 U.S.C. 101, these functions are ta the process of being transferred to the Department of Transportation pursuant to section 6(a) (1) (A)-(G) of the Department of Transportation Act, October 16, 1966 P.L, 89-670, 80 Stat. 931, 937.

Vol. 42, Op. No. 32.

found in section 108(b) of the Federal-Aid Highway Act of 1956, June 29, 1956, c. 462, 70 Stat. 378, as amended, 23 U.S.C. 101 note. The funds expected to be available with respect to each fiscal year included in these authorizations are apportioned among the States on or before the first day of January preceding the fiscal year for which they are authorized to be appropriated. 23 U.S.C. 104 (a), (b). Funds so apportioned remain available for obligation · at any time prior to the close of the second fiscal year after the fiscal year for which they are authorized. (23 U.S.C. 118 (a), (b))

After apportionment, the States submit general programs of proposed highway projects for approval (23 U.S.C. 105). Following the approval of a program by the Secretary, the State submits "such surveys, plans, specifications, and estimates for each proposed project included in an approved program as the Secretary may require." Approval of a specific project by the Secretary *shall be deemed a contractual obligation of the Federal Government for the payment of its proportional contribution thereto." (23 U.S.C. 106(a))

Payments to the States are made pursuant to appropriation acts based on estimates of the requests to be made by the States in each fiscal year for reimbursement for work performed. We understand that there is a variable, often considerable, time lag between the approval of a project and the requests of the State for partial or full reimbursement of the Federal proportional contribution to the cost of the work performed on that project. Thus actual appropriations in any given year will include reimbursement of costs resulting from projects approved in preceding years.

The amount which may be appropriated in any given year for Federal-aid highway purposes is subject to two limitations : First, it cannot exceed the amounts provided for in the authorization act and, second, it cannot exceed the funds available in the Highway Trust Fund. See, e.g., Departments of State, Justice and Commerce, the Judiciary and Related Agencies Appropriation Act, 1967, November 8, 1966, P.L. 89-797, 80 Stat. 1479, 1495 (Bureau of Public Roads, Federal-Aid Highways (Trust Fund)).

It is my conclusion that the Secretary has the power to defer the availability to the States of those funds authorized and apportioned for highway construction which have not, by the approval of a project, become the subject of a contractual obligation on the part of the Federal Government in favor of a State.

Although your inquiry is not directly concerned with an appropriation act, but rather with the effect of legislation authorizing actions ultimately leading to appropriations, it will be useful to consider first the effect of a congressional appropriation of money. The basic function of such legislation is to furnish the formal permission required by Article I, section 9, clause 7 of the Constitution for the withdrawal of funds from the Treasury. Cincinnati Soap Co. v. United States, 301 U.S. 308, 321 (1937). The courts have recognized that appropriation acts are of a fiscal and permissive nature and do not in themselves impose upon the executive branch an affirmative duty to expend the funds. Hukill v. United States, 16 C. Cl. 562, 565 (1880); Campagna v. United States, 26 C. CI 316, 317 (1891); Lovett v. United States, 101 C. ci, 557, 583 (1945). affirmed on other grounds, 328 U.S. 303 (1946); McKay v. Central Electric Power Cooperative, 223 F.2d 623, 625 (C.A.D.C. 1955).

Congress, of course, is fully aware of the rule that an appropriation act in itself does not constitute a mandate to spend. The classic exposition of this characteristic of appropriations legislation may be found in the House Appropriations Committee report on the General Appropriation Bill, "RESPONSIBILITY OF THE EXECUTIVE BRANCH."

"Economy neither begins nor ends in the Halls of Congress. * * * The Congress * * * decides the maximum amounts which must be appropriated for * * * various activities, and the annual appropriation bill provides the sums so determined by the Congress.

2 While 23 U.S.C. 118(b) uses the term "expenditure," the second sentence of the subsection indicates that the term "expenditure" is there used in the sense of "obligation."

3 Section 209 of the Highway Revenue Act of 1956. June 29. 1956. c. 462. 70 Stat. 397 397. 23 U.S.C. 120 note. established the Highway Trust Fund and appropriated into that Fund amounts equivalent to specified percentages of certain taxes received in the Treasury. Under section 209 (f), the amounts in the Highway Trust Fund are available

, to be made annually, for expenditures to meet the obligations of the United States under 23 U.S.C. 106(a). .

"Appropriation of a given amount for a particular activity constitutes only a ceiling upon the amount which should be expended for that activity. * * * [It is the) responsibility [of every Government official] to so control and administer the activities under his jurisdiction as to expend as little as possible out of the funds appropriated.” H. Rept. 1797, 81st Cong., 2d sess., p. 9.

Or as the then Senator Harry S. Truman observed in 1943 :

"Mr. Truman. * * * When the Congress appropriates funds it gives the executive branch an authority to incur obligations. Certainly none of us hold that we give a mandate to expend the funds appropriated. We expect the funds to be used only where needed, and not in excess of the amount appropriated, to carry out some phase of law.” 89 Cong. Rec. 10362.

An appropriation act thus places an upper and not a lower limit on expenditures. The duty of the President to see that the laws are faithfully executed, under Article II, section 3 of the Constitution, does not require that funds made available must be fully expended. This principle has received statutory recognition in the Anti-Deficiency Act, February 27, 1906, C. 510. sec. 3, 34 Stat. 49 (31 U.S.C. 665(c) ), which authorizes the executive branch to effectuate savings of appropriated funds, and in 31 U.S.C. 701, which provides that unexpended appropriated funds shall revert to the Treasury.

Many factors must be weighed by the Executive in determining the extent to which funds should be expended. Consideration must be given not only to legislative authorizations and appropriations but also to such factors as the effect of the authorized expenditures on the national economy and their relation to other programs important to the national welfare.

A situation analogous to the present one arose in the early 1940's when the economy of the United States shifted first to defense and later to war production. At that time President Franklin Delano Roosevelt directed that projects having a lower priority would have to be postponed or even cancelled in spite of the availability of appropriated funds. In response to complaints about the curtailment by the Bureau of the Budget of certain programs of the Agricultural Marketing Administration, President Roosevelt set forth the powers and responsibilities of the executive branch in this area :

"It should, of course, be clearly understood that what you refer to as "the practice of the Bureau (of the Budget] of impounding funds duly appropriated by the Congress' is in fact action by the Chief Executive, and has two purposes. The first purpose is compliance with the Anti-Deficiency Act, which requires that appropriated funds be so apportioned over the fiscal year as to insure against deficiency spending. * * * Secondly, the apportionment procedure is used as a positive means of reducing expenditures and saving mones wherever and whenever such savings appear possible.

"While our statutory system of fund apportionment is not a substitute for item or blanket veto power, and should not be used to set aside or nullify the expressed will of Congress, I cannot believe that you or Congress as a whole would take exception to either of these purposes which are common to sound business management everywhere. In other words, the mere fact that Congress, by the appropriation process, has made available specified sums for the various programs and functions of the Government is not a mandate that such funds must be fully expended. Such a premise would take from the Chief Executive every incentive for good management and the practice of commonsense economy. This is particularly true in times of rapid change in general economic conditions and with respect to programs and activities in which exact standards or levels of operation are not and cannot well be prescribed by statute." •

One incident which occurred during that period seems particularly relerant for the problem at hand. Section .9 of the Rural Post Roads Act of July 13. 1943. c. 236, 57 Stat. 560, 563, provided :

"No part of any appropriation authorized in this Act shall be impounded or withheld from obligation or expenditure by any agencvor official, unless the War Production Board shall certify that the use of critical materials for additional highway construction would impede the conduct of the war." This section was based on an even broader proposed rider which had been added to the bill in the Senate for the avowed purpose of eliminating the anthority of the Bureau of the Budget to impound highway funds, 89 Cong. Rec. 6313 6316. and which was narrowed in conference because the Senate provision

* This letter is reproduced in part in First Supplementat National Defense Appropria. tinn. 1944. Hearings hefore a Subcommittee of the Senate Committee on Appropriations, 78th Cong.. 1st sess. on H.R. 3598, p. 739.

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