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Office of Planning, Environment, & Realty (HEP)

Treatment of Right-of-Way Income Under 23 U.S.C. §156

In 23 U.S.C. § 156, as amended by the Transportation Equity Act for the 21" Century, Pub. L. No. 105 178, § 1303(a), 112 Stat. 107, 227 (1998) (TEA 21), Congress required that States charge fair market value for the sale, use, lease, or lease renewal of real property acquired with Federal assistance from the Highway Trust Fund. The statute created limited exceptions for utility use and occupancy or for eligible transportation projects, and allows the Secretary to grant exceptions for social, environmental, or economic purposes. Subsection (c) of Section 156 provides:

(c) Use of Federal share of income. The Federal share of net income from the revenues obtained by a State under subsection (a) shall be used by the State for projects eligible under this title.

23 U.S.C. § 156(c). There is no doubt that this language authorizes the States to retain the Federal share of sale or lease proceeds for use in subsequent Federal highway projects. With respect to the legal restrictions on the use of such funds, the first issue is whether, once applied, such proceeds continue to be "Federal funds" carrying with them all the conditions that apply to Federal assistance under Title 23, United States Code.

The question arises from an Office of Inspector General (OIG) audit report on the October 2001 Finance Plan for the Central Artery/Tunnel Project (the Project). The OIG report states that the Federal government contributed 90 percent of the original cost to acquire the Project's Headquarters, which the Massachusetts Turnpike Authority (MTA) now plans to sell to generate cash. The report questions FHWA's interpretation of Section 156(c) that the Federal share of the proceeds becomes State funds and thereby loses its Federal character. The OIG believes that "a better reading of [the statute] would find that Congress intended to streamline the process for reapplying the `Federal share' of real estate proceeds to other Federal aid eligible transportation projects, but did not intend to extinguish the Federal character of the money." DOT OIG Audit Report No. IN 2002 086 (March 11, 2002) at 5. The OIG opinion is based primarily on the reference in Section 156(c) to "Federal share."

Senator McCain sought the opinion of the General Accounting Office (GAO) on FHWA's interpretation of Section 156. GAO disagreed with FHWA's interpretation in an opinion (B290744) issued on September 13, 2002, by its General Counsel. The opinion outlined the history of Section 156(c), as summarized below, and concluded that sale or lease proceeds proportional to the Federal contribution to the original acquisition retain their identity as Federal funds. The GAO opinion, like the OIG audit report, relies heavily on the reference in Section 156 to the "Federal share" and the common grant rule on sale of excess property.

A second issue is whether the limitation on Federal contributions to the Project contained in Section 340(d) of the Department of Transportation and Related Agencies Appropriations Act, 2001, Pub. L. No. 106 346, 114 Stat. 1356, 1356A 32 (2000), applies to proceeds derived from the sale of excess Project right of way that originally was purchased with Federal funds. As the GAO opinion points out (at 3 4), that opinion did not address the issue of whether the proceeds from excess property sales would be counted as part of the Federal share for purposes of the limitation. On February 20. 2003, the DOT Inspector General requested GAO to issue a separate legal opinion addressing this issue. The Inspector General also requested GAO to determine whether lease payments incurred by the Project by continuing to occupy the headquarters building after its sale would be eligible for reimbursement with Federal funds given that Federal funds were used for the original real estate purchase. To facilitate its review of OIG's request, in a letter dated March 6, 2003, the GAO General Counsel requested that we respond to a number of specific questions. Subsequently, OIG presented a memorandum to our office, dated March 18, 2003, reiterating its position and raising several additional points. We responded to GAO's specific inquiries by letter dated March 28, 2003. Our responses to these inquiries are discussed in more detail in this memorandum.

Most recently, the OIG issued its "Report on the October 2002 Finance Plan for the Central Artery/ Tunnel Project." DOT OIG Audit Report No. IN 2003 039 (March 31, 2003). The report states, "[t]he Finance Plan should disclose unresolved legal issues surrounding the treatment of proceeds from the planned sale of the Project's headquarters' building." 2003 OIG Report at 8. This analysis directly addresses the issues referenced in the report.

A. Proceeds from the sale or lease of real property

The percentage of the Federal monetary contribution toward the total cost of a project is the "Federal share." See eg nerallx GAO Principles of Federal Appropriations Law, Vol. II at 10 58 to 10 62. In 23 U.S.C § 120, a matching share provision, Congress prescribed the Federal and State percentages associated with various types of projects. For example, the Federal share for most Interstate highway projects is 90%, while the Federal share for most other eligible projects is 80%. 23 U.S.C. § 120. The term "Federal share" means the dollar amount of the Federal contribution to the total project cost, but does not connote more, as the GAO and OIG opinions argue. Rather, the conditions that apply when a State agrees to share costs with the Federal government depend on the specific enabling legislation for a particular program.

In 1962, as the Bureau of Public Roads was establishing its policy to implement the provisions of 23 U.S.C. § 111 relating to the use of airspace above and below the established grade line of Interstate highways, the Assistant Secretary of Commerce for Administration sought the Comptroller General's opinion on whether the Bureau could require States to earmark income from airspace use for highway purposes. 41 Comp. Gen. 653 (1962). The Comptroller General concluded that the Bureau had no authority to require States to use proceeds from the lease of airspace for highway projects. Section 111 provided that project agreements could authorize States to use or permit use of airspace but was silent on disposition of proceeds from such use. The Comptroller General recommended that the Bureau seek legislation authorizing a credit to the United States from profits derived by the States from the use of airspace, recognizing that the Federal government usually contributed 90% of the acquisition costs of the rights of way involved.

The recommended legislation was not enacted, and in 1974, FHWA promulgated regulations governing disposal of rights of way and real property. In 23 C.F.R. § 713.307, FHWA provided that, if disposal was to a non governmental entity and Federal funds had been used to acquire the property, then a pro rata credit to Federal funds based on a ratio of the Federal contribution to the acquisition cost was required. The regulations also provided that income received from the authorized use of airspace belonged to the State with no requirement to credit Federal funds. 23 C.F.R. § 713.205(v) (1974). The regulations were consistent with the 1962 Comptroller General opinion and established differing treatment for sale or lease proceeds depending on whether the sale/lease was of airspace or of other real property. FHWA's 1974 regulations remained in force until 1999, when regulatory changes were made to implement TEA 21. During the effective period of the 1974 regulation, FHWA routinely and consistently permitted States to use the Federal share of airspace revenues on eligible Title 23 projects without requiring them to observe the conditions that attach to direct Federal assistance.

The predecessor to the current Section 156 was enacted as Section 126 of the Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub. L. No. 100 17, 101 Stat. 132, 167 (1987). Section 126 replaced the previous Section 156 (related to construction or reconstruction of public highways or highway bridges across any Federal public works projects) with a provision requiring States to charge fair market value, with limited exceptions, for the sale, use, or lease of right of way airspace acquired as a result of a Federally funded highway project. The Section also provided that:

The Federal share of net income from the revenues obtained by the State for sales, uses, or leases (including lease renewals) under this section shall be used by the State for projects eligible under this title.

Pub. L. No. 100 17, § 126(a). This language is essentially the same as the current Section 156(c) set forth above. The legislative history is clear that Congress intended that the Federal share of net income from sales or leases of airspace rights of way be used by the States for eligible highway projects, as the Bureau of Public Roads had proposed in 1962. However, the legislative history sheds no light on the question of whether Congress intended such funds to retain their character as Federal funds, with the accompanying restrictions on use. See H.R. Rep. No. 99 665 at 21 (1986); S. Rep. No. 100 4 at 26 (1987); H.R. Conf. Rep. No. 100 27 at 169 170 (1987).

In 1998, in Section 1303(a) of TEA 21, Congress expanded the predecessor to the current Section 156 to make it applicable not only to airspace rights of way, but also to all real property acquired with Highway Trust Fund assistance. However, Congress did not otherwise change the language of subsection (c).

TEA 2 I's change to Section 156 originated in the Senate, and the accompanying Senate Report explains that the provision:

expands the requirement in section 156 to apply to the net income generated by a State's . . . use of all real property acquired with Federal financial assistance. The revised section applies the same standard to all real property interests acquired with Federal aid highway funds.

This section will reduce a State transportation department's administrative overhead relating to property management practices. It will simplify such practices it (sic) by applying the same standard to all real property interests acquired with Federal aid highway funds.

S. Rep. No. 105 95, at 28 29 (1997). The Conference Committee adopted the Senate provision. H.R. Rep. No. 105 550, at 424 425 (1998).

The FHWA has provided a chronology of the agency's treatment of the Federal share of proceeds from the disposal of airspace rights of way, demonstrating that FHWA historically interpreted the predecessor language that was similar to the current Section 156(c) as authorizing the State to retain the Federal share for future transportation projects and that such proceeds were State funds, not subject to Federal requirements regarding the expenditure of Federal funds. The GAO opinion acknowledges that FHWA treated right of way airspace proceeds under the predecessor statute as project income that the States could use as they saw fit and that the proceeds were State funds. B 290744 at 2. However, the opinion incorrectly assumes (at 6) that, "unlike proceeds from the sale of excess property," the proceeds from the disposal of air rights would always be treated as "program income," consistent with 49 C.F.R. § 18.25 of the Government wide common rule on grants to State and local governments, promulgated in 1988. Contrary to GAO's implicit assumption, as a matter of law, it is clear that air rights or airspace are interests in real property. See 23 C.F.R. § 710.105(b); see also 4 Nichols on Eminent Domain § 13.17. Hence, the sale of such real property interests would, if covered by the common rule, be governed only by provisions relating to the disposal of real property in 49 C.F.R. § 18.31(c). Clearly, one overriding purpose of the TEA 21 amendments to Section 156 was to provide consistency and simplification by expanding its coverage, to include not only the proceeds from the sale or lease of one type of real property interest (airspace), but to cover the proceeds from the sale or lease of all types of real property interests.

The amendment enacted as part of TEA 21 originated as Section 1008 of the prior Administration's surface transportation legislative proposal to ensure that proceeds from the disposition of all real property interests would be treated in the same manner. The prior Administration's rationale, as stated in the Section by Section analysis submitted with its proposal, is reflected in the Senate report quoted above. The Administration's proposal clearly states that the former Section 156, which was limited to treatment of income from use of airspace, authorized "States to retain the Federal share of net income from the sale, use or lease of this airspace as long as that same amount was used by the State for projects eligible for funding under Title 23." Letters to President of the Senate and Speaker of the House of Representatives dated March 12, 1997, from Secretary Rodney E. Slater, Section by Section Analysis at 9. The submission went on to explain that the proposed Section 1008 would simplify property management practices by applying the standard applicable to airspace rights to all real property interests and "requiring that the Federal share of any proceeds be reapplied within the State to other projects eligible for funding under title 23." Id. at 9 10.

After enactment of the TEA 21 amendment, FHWA implemented the statute in a final rule published December 21, 1999, and effective January 20, 2000. See 60 Fed. Reg. 71284 (1999). Among other changes, this final rule removed 23 C.F.R. Part 713, including the sections discussed above relating to the treatment of airspace right of way income as State funds.

The new Section 710.403(e) provides:

The Federal share of net income from the sale or lease of excess real property shall be used by the [State Transportation Department] for activities eligible for funding under title 23 of the United States Code. Where project income derived from the sale or lease of excess property is used for subsequent title 23 projects, use of the income does not create a Federal aid project.

Like the Senate Report on the TEA 21 amendment, the preamble to the FHWA rule explains that the change "reduces administrative burdens on States and the FHWA and gives States and local governments greater flexibility in use of funds, while also protecting Federal interests by ensuring funds are used on purposes permitted under title 23, U.S.C. Under the rule, income from all property uses arid dispositions is treated in a uniform manner." 60 Fed. Reg. at 71287.

In its recent opinion, the GAO asserts that there is nothing in the TEA 21 amendment to Section 156 "that is inconsistent with the proceeds retaining their character as Federal funds." B 290744 at 6. That assertion ignores certain principles of statutory construction. First, in the absence of a clear intention to repeal earlier acts, amendments are construed to continue, rather than substitute for, earlier acts. Posadas v. National City Bank, 296 U.S. 497, 503 (1936). That is particularly so where, as here, the statutory language at issue has been reproduced in the later enactment. Id.

Second, amendments are not to be construed to change the original act further than expressly declared or necessarily implied. Sutherland Statutory Construction § 22.30 (Norman Singer ed., 6d' ed. 2000); United States v. Abreu, 940 F. Supp. 443, 445 (D.R.I. 1996); United States v. Payne, 30 F.2d 960, 961 (W.D. Wash. 1929) (citing McDonald v. Hovey, 110 U.S. 619 (1884)). The language in the current subsection (c) addressing the use of the Federal share of proceeds is virtually identical to that in the predecessor statute. GAO's opinion necessarily assumes that Congress intended to enact a change to the longstanding interpretation of the language without making any such change in the statutory language. We believe that the legislative history discussed above contradicts that interpretation, evidencing Congress' intent to expand the scope of the former statute without making any change to FHWA's longstanding interpretation.

Third, when it amends an existing statute, Congress is presumed to be aware of prior interpretations of the law, and if the existing provision is retained, Congress is presumed to have.adopted the prior construction. Commissioner v. Noel Estate, 380 U.S. 678, 682 (1965); Isaacs v. Bowen, 865 F.2d 468, 473 (2d Cir. 1989); Sierra Club v. Secretary of Army. 820 F.2d 513, 522 (1 st Cir. 1987); Williamson Shaft Contracting, Co. v. Phillips, 794 F.2d 865, 869 (3rd Cir. 1986); Meltzer v. Zoller, 520 F. Supp. 847 (D.N.J. 1981). There is no dispute that FHWA's previous interpretation of similar language in the predecessor statute provided that the proceeds became State funds.

Finally, statutes must be read to carry out congressional intent. United States v. Fausto. 484 U.S. 439, 444, 447 448 (1988); Addison Taylor v. United States, 51 Fed. Cl. 25, 33 (2001); see also Sutherland Statutory Construction § 45.05 (Norman Singer ed., 6th ed. 2000). In this case, the GAO's reading of the TEA 21 amendment would frustrate, rather than further, Congress' stated purpose of reducing States' administrative overhead and simplifying property management practices by applying additional Federal requirements to the use of sale or lease proceeds.

It is well established that, incident to the Commerce and Spending Clauses, Congress may condition its disbursement of Federal funds to the States. New York v. United States, 505 U.S. 144, 167 168 (1992); South Dakota v. Dole, 483 U.S. 203, 206 208 (1987); Pennhurst State School v. Halderman, 451 U.S. 1, 17 (1981). Grant legislation is like a contract "in return for [F]ederal funds, the States agree to comply with federally imposed conditions." Pennhurst, 451 U.S. at 17. As the Court explained:

The legitimacy of Congress' power to legislate under the spending power thus rests on whether the State voluntarily and knowingly accepts the terms of the `contract.' . . . There can, of course, be no knowing acceptance if a State is unaware of the conditions or is unable to ascertain what is expected of it. Accordingly, if Congress intends to impose a condition on the grant of Federal moneys, it must do so unambiguously.

Pennhurst, 451 U.S. at 17. Nothing in the plain language of Section 156(c) or its legislative history supports GAO's conclusion that Congress intended to place Federal conditions on the use of the Federal share for eligible Title 23 projects. To the contrary, GAO's interpretation of Section 156(c) would leave unanswered the question of what, if any, conditions should apply the conditions that attached to the original Federal share, conditions that would otherwise attach to the new project or projects undertaken, or some other set of conditions?

GAO's opinion acknowledges that an agency's reasonable and permissible interpretation of a statute it is charged with administering is entitled to deference, but argues that FHWA's interpretation of Section 156(c) is not reasonable. B 290744 at 6 7. The twostep test articulated by the Supreme Court in Chevron U.S.A. Inc. v. Natural Resources

Defense Council Inc., 467 U.S. 837 (1984), determines whether an agency's interpretation of a statute or its own regulation, either through decision making or through its own implementation of a statute through its regulations, should be accorded deference. The Chevron test is comprised of two distinct steps. The first step is to ask whether Congress has directly spoken to the precise question at issue. Id. This step is only satisfied if the intent of Congress is expressly set forth in the statute. Id. "If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation." Id. at 844. Here, Section 156(c) is silent as to whether the Federal share retains its Federal character, and FHWA properly addressed the matter by regulation.

If the intent of Congress in the statute is ambiguous, the court must go on to step two whether the agency's regulation is based on a permissible construction of the statute. Ld. "A court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Id. at 844. To determine that an agency's construction of a statute is permissible, the court need not find that it was the only interpretation the agency could have adopted, nor that it is the same construction the court would have adopted. Id. at 843 n. l 1 (citing inter al,~' Zenith Radio Corp. v. United States, 437 U.S. 443, 450 (1978); Train v. Natural Resources Defense Council. Inc.. 421 U.S. 60, 75 (1975)). In determining whether an agency's interpretation is reasonable, courts will consider the statutory language, the legislative history, policy arguments, and the agency's past comments and interpretations on the statute, among other factors. See generally Chevron. 467 U.S. 837 (1984).

GAO's opinion concludes that FHWA's interpretation of Section 156 is unreasonable, and thus should not be accorded deference, based primarily on GAO's interpretation of several words in the statute. GAO argues that the use of the term "Federal share" is dispositive of the fact that Congress intended the funds to retain their Federal character. To the contrary, however, the plain language of the statute does not characterize the "Federal share" as "Federal funds," which is the term of art normally used in statutory provisions attaching Federal conditions. Therefore, at most, the intent of Congress is ambiguous, and the factors enumerated in Chevron must be considered.

In this case, in light of the legislative history demonstrating the intent to expand Section 156 to all real property, FHWA's longstanding interpretation that the Federal share of the revenues under the predecessor statute became State funds, the absence of any legislative history demonstrating an intent to change previous FHWA interpretations of the section, and FHWA's balancing of competing interests (protecting the Federal interest while streamlining administrative burdens), we conclude that FHWA's interpretation is both permissible and reasonable and is entitled to substantial deference.

Finally, the GAO opinion relies on provisions of the Government wide common rule, set forth at 49 C.F.R. Part 18, governing grants to State and local governments, including assistance for highways. Although the common rule is intended to have broad applicability, ensuring uniform requirements across many programs, 49 C.F.R. § 18.4(a) expressly states that the common rule is not applicable where it is inconsistent with statutes or other properly promulgated regulations. In this case the common rule is clearly inconsistent with FHWA's regulations at 23 C.F.R. § 710.403.

The GAO opinion discusses two sections of the common grant rule, § 18.25 Program Income and § 18.31 Real Property. Under § 18.25(a), program income includes income from the use or rental of real or personal property acquired with grant funds. Normally, program income is deducted from total allowable costs to reduce the Federal .. contribution; in some cases program income may be added to the total project costs. Proceeds from the sale of real property are handled under § 18.31. This section provides that when real property is no longer needed for its authorized purpose and is sold, the awarding agency is entitled to a portion of the proceeds proportionate to the Federal contribution of the original acquisition cost. 49 C.F.R. § 18.31(c)(2). GAO places great weight on this latter provision to conclude that Section 156 does not create an exception to the common grant rule, and that Section 18.31 must be read together with Section 156.

However, FHWA's regulations are inconsistent with the common grant rule in that they regulate how the state may use right of way proceeds rather than requiring the return of the Federal share of proceeds. Section 710.403(d) of Title 23, Code of Federal Regulations, states "[a]cquiring agencies shall charge current fair market value or rent for the use or disposal of real property interests, including access control, if those real property interests were obtained with title 23 of the United States Code funding," subject to certain exceptions related to public uses. Section 710.403(e) limits the use of net income from the sale or lease of excess real property to Title 23, United States Code, eligible activities and states that such use of the funds does not create a Federal aid project. Thus, GAO's interpretation ignores two important points: (1) the common grant rule itself provides that it is not applicable where a statute or properly promulgated regulation establishes a different rule, and (2) FHWA has implemented the statute through regulations that require a different conclusion. Therefore, by its own terms, the common rule does not apply.

The GAO General Counsel's letter of March 6, 2003, asks whether it is necessary to differentiate between the Federal share and State matching funds under 23 U.S.C. § 156 when reinvesting funds acquired through the disposition of property in the same project, and how these reinvested funds should be handled as an accounting matter. It would be necessary to differentiate between the Federal and State shares only to enforce the Section 156(c) requirement that the Federal share be used for Title 23 purposes, as promulgated in FHWA's regulations at 23 C.F.R: § 710.43(d) (e). Pursuant to FHWA's interpretation of Section 156(c), which is reflected in its regulations, each state program office has procedures in place to ensure that such funds are only used for projects that are eligible for funding under Title 23, United States Code.

The GAO letter further asks what accounting procedure should be used to handle funds received from the disposition of property acquired with project funds and reinvested in the same project. We believe that the State's share should be treated as State funds, and the use of those funds should be governed entirely by State law. The Federal share should be considered State funds subject to the Federal condition that they must be used for a project (or projects) that are eligible for funding under Title 23, United States Code.

B. Limitation on Federal contributions to the Project

After numerous significant cost increases, independent reviews of cost estimates, and failures by Project officials to provide accurate cost information, Congress enacted a limitation on total Federal contributions to the Project. The limitation states: "Total Federal contributions to the Central Artery/Tunnel project shall not exceed $8,549,000,000" Department of Transportation and Related Agencies Appropriations Act, 2001, Pub. L. No. 106 346, § 340(d), 114 Stat. 1356, 1356A 32 (2000). The House version of the Appropriations Act included a provision prohibiting any Federal official from authorizing project approvals or advance construction authority for the Project during Fiscal Year 2001. H.R. Rep. 106 622 at 75 (2000). Senator McCain added an amendment to the Senate version of the bill precluding the expenditure of administrative funds for project approvals or advance construction authority "until the Secretary of Transportation and the State of Massachusetts have entered into a written agreement that limits the total Federal contribution to the project to not more than $8,549,000,000." 146 Cong. Rec. 55381 (daily ed. June 19, 2000). Senator McCain noted that the House provision would effectively halt the project while his proposal would not. According to Senator McCain's contemporaneous statement on the floor of the Senate explaining his proposed amendment, the proposal was intended to codify a promise made by thenSecretary of Transportation Rodney Slater, during a May 3, 2000 hearing, that the Department and the Commonwealth would enter into a written agreement to cap the Federal contribution to the Project at $8,549,000,000. 146 Cong. Rec. S5183 (daily ed. June 15, 2000) (referencing Hearing on the Boston Central Artery Tunnel, Before the Senate Comm. On Commerce, Science, and Transportation, 106th Cong. (May 3, 2000)).

In response to the second issue raised by OIG, which is also posed in the GAO General Counsel's letter of March 6, 2003, we believe that the cap applies to Federal funds that are apportioned to Massachusetts, including both those apportioned by formula to the state, and those allocated directly to the Project. This is apparent from how the cap was established and from the statute and its legislative history. We note that FHWA has consistently construed the cap as applicable only to funds that are apportioned to Massachusetts, based on the language of Section 340(d) and its legislative history.

First, our detailed review of the legislative history of Section 340 demonstrates that Congress derived the amount of the limitation on Federal funds, $8,549,000, from calculations provided by the Federal Highway Administration (FHWA). The documents in the factual record show that the calculation was derived from funds obligated or expected to be obligated. The cap did not include proceeds or net income that might be realized from the lease or sale of right of way.

As confirmed by a May 8, 2000 letter from the FHWA to the Chair of the MTA, the $8,549,000 figure was calculated by FHWA using amounts detailed in the Finance Plan update submitted on March 15, 2000. That document showed Federal obligations of

$7.049 billion (of which $5.856 billion already had been obligated through March 31, 2000) plus grant anticipation notes of $1.5 billion. Although the Finance Plan also showed other sources of revenue, the $8.549 billion limitation was solely derived from the sum of Federal funds obligations plus grant anticipation notes.

The partnership agreement was executed on June 22, 2000, and limited "the maximum level of Federal aid highway obligation authority and funding available" for the Project to $8.549 billion. It is our understanding that, at the time Senator McCain proposed the statutory cap, he relied on the dollar amount developed by FHWA, and that total amount did not include as part of the Federal contribution any amount from the sale of the Headquarters building.

Senator Kennedy posed no objection to Senator McCain's proposal and noted that it reflected the agreement of all parties the Secretary, the MTA, the Governor, the Massachusetts legislature, the Massachusetts congressional delegation, and Senator McCain that "the total Federal contribution remains as it was $8.549 billion. It is the responsibility of the Commonwealth of Massachusetts to cover any increased costs." 146 Cong. Rec. at S5183. Senator Kennedy went on to point out that Massachusetts had developed a plan to pay for the increased costs of the Project without additional Federal assistance and that the plan was at that time under review by FHWA. Id. at S5183S5184. .

However, the plan referenced by Senator Kennedy was not acted upon by FHWA. Rather, FHWA directed the Project to submit its annual October 2000 plan in conformance with new finance plan guidelines issued May 23, 2000. DOT OIG Audit Report No. IN 2001 009 (November 29, 2000) at 5. While the Project Headquarters building was not specifically mentioned in the plan, the plan did state in general terms that Massachusetts intended to use revenues realized from real estate and other right ofway sales proceeds as an additional contingency funding source. The plan stated that "[a]ny revenues realized from the development of the Turnpike Authority's real estate and right of way efforts could be used to either reimburse the Commonwealth for the resources it devotes to the Project or to pay for additional Project costs if the revenues are realized prior to Project completion." Central Artery/Tunnel Project Finance Plan submitted by the MTA, October 1, 2000 at 37. The plan identified $141 million to $308 million from disposition of real estate air rights and other right of way assets as a State contribution. Finance Plan at 38. The 2000 Project Finance Plan was approved by FHWA in October 2000 and by the OIG on November 29, 2000. OIG Audit Report at I .

The OIG believes that Congress intended to limit Federal contributions from all sources, "not just a particular revenue stream." OIG Audit Report at 7. However, where Congress intended that sales proceeds be included within the limitation, it explicitly stated that intent. For example, funds derived from the sale of grant anticipation notes are within the limitation pursuant to the proviso of Section 340(g) ("Provided, That no funds derived from the sale of grant anticipation notes shall be used to exceed the caps described in subsections (b) and (d)"). This express limitation is reflected in FHWA's May 8, 2000, letter outlining how the $8.549 billion amount was derived.

In addition, the language of Section 340 consistently refers to funds "apportioned" to the Commonwealth. That terminology is expressly used in provisions that invoke the cap. While subsection (d), which establishes the cap, refers instead to "Federal contributions," the Conference Report accompanying the FY 2001 DOT Act resolves arty ambiguity. The Report makes clear that "Sec. 340 pertains to funds apportioned to the Commonwealth of Massachusetts and the Central Artery/Tunnel project." As .explained below, we do not believe that the net proceeds of sales of excess right of way are "apportioned" funds, as a matter of law.

An "apportionment" is a term of art in Federal appropriations law, encompassing all contract authority funds or appropriated budget authority made available for obligation, whether those funds are apportioned by formula or allocated directly to a project. The purpose of an "apportionment" is to promote the efficient use of Federal funds by ensuring that obligations and expenditures are made at a controlled rate. Controlling the rate of obligations and expenditures should prevent deficiencies and ensure that there is no drastic curtailment of the activity for which the appropriation is made. 36 Comp. Gen. 699 (1957); 31 U.S.C. § 1512(a); see al GAO Principles of Federal Appropriations Law, Vol. 11 at 6 72, 6 73; OMB Circular A 11, Part 4 § 120 g".

The requirement to. "apportion" budget authority of the United States applies to all contract authority funds and appropriations administered by the Secretary. See GAO Principles of Federal Appropriations Law, Vol. II at 6 72, 6 73. Under Section 1512(a) of Title 31, United States Code, for programs such as the Federal aid highway program, which includes the authority to incur contract obligations before appropriations, contract authority funds and miscellaneous appropriated funds are "apportioned" to ensure their most effective and economical use. For purposes of Title 31, United States Code, as well as Section 340(d) of the FY 2001 DOT Act, both contract authority funds and appropriations "allocated" specifically to the CANT project and contract authority funds "apportioned" to the Commonwealth are "apportioned funds." Under the applicable statutes, neither the Office of Management and Budget nor the Secretary apportions "credits."

Although the Conference Report explained that Section 340 pertains to "funds apportioned to the Commonwealth of Massachusetts and the Central Artery/ Tunnel project," H.R. Conf. Rep. No. 106 940, at 149 (2000), that limitation was intended to cover contract authority funds that are distributed to the Commonwealth by formula and contract authority or appropriations provided directly for the Project. The limitation serves to control Federal budgetary expenditures and does not contemplate the "capture" of revenues that might be generated as a result of prior authorized expenditures of Federal funds, but are not "apportioned" as part of the Federal budget process.

This interpretation of the law is consistent with the Project Partnership Agreement of June 22, 2000, upon which the cap was based. The Agreement states that the maximum level of Federal aid highway obligation authority and funding available, for the Project shall not exceed $8.549 billion. Obligation authority (also referred to as "obligation limitation") is the stated dollar amount of Federal aid highway funds subject to the annual ceiling established by Congress for the Federal aid highway program as a whole and sub divided annually in a stated dollar amount for each State. The ceiling is a control imposed by Congress on the sum total of obligations of Federal aid highway funds, which acts to control future outlays or expenditures of Federal funds. Funds realized from the disposal of the headquarters building will never come back to any account administered or controlled by FHWA for apportionment. The GAO opinion of September 13, 2002, recognizes this essential fact. B 290744 at 2.

In summary, when Congress imposed a limitation on "Federal contributions" derived from funds "apportioned to the Commonwealth and the project," that limitation applied to contract authority funds distributed to the Commonwealth by formula and contract authority funds or miscellaneous appropriations allocated to the Project directly. The limitation covered Federal obligations and. did not contemplate the "capture" of revenues generated as a result of a prior authorized expenditure of Federal funds. Our conclusion on this issue is independent of the issue of whether the sale proceeds are "Federal funds" discussed in Part A above.

C. Federal reimbursement for the leaseback of Project headquarters

Finally, the DOT Inspector General and GAO have asked whether Project headquarters leaseback costs are eligible for Federal reimbursement after the sale of the property. Based on discussions with FHWA officials and our review of relevant documents, we believe that headquarters building lease costs would not be eligible for Federal reimbursement once the property is sold, because Federal funds were used in the acquisition of the Project headquarters building. FHWA has already paid for use of the building, and Federal aid highway funds could not be used to pay the same costs twice. See 23 C.F.R. § 1.9(a) ("Federal funds shall not participate in any cost which is not incurred in conformity with applicable Federal and State law, the regulations of this title, and policies and procedures prescribed by the [FHWA] Administrator"); see also GAO Principles of Federal Appropriations Law, Vol. II at 9 6$ ("[T]here is of course no authority to make known overpayments)." Such funding would constitute a double payment. FHWA has informed the MTA and Project staff of its position on this issue. In a March 27, 2003 letter to the FHWA Massachusetts Division Administrator, MTA acknowledged that fact, stating that "[t]he Project does not intend nor will it seek Federal reimbursement for any costs associated with the leaseback of the building. The Project anticipates that Federal funding would not be necessary nor does the Project anticipate that FHWA would approve such funding." Thus, as we indicated in our response to GAO, given that Federal funds were already used to acquire space to house the project headquarters, additional Federal funds may not be applied to the cost of the leaseback of the premises after they are sold.

Updated: 9/5/2014
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