For nearly a century, the federal government has used government businesses to advance its policy agenda. Increased attention in recent decades has been paid to the possibility of forming a government company and other variants of this type of agency by legislators, the executive branch, and academics. Today’s normal Congress sees multiple bills to create government corporations. There have been two legislation submitted in the 112th Congress to form government firms to improve the U.S. infrastructure at the time this report was published: and. The 111th Congress considered legislation to establish a National Infrastructure Development Bank, a Green Bank, and an Indian Development Finance Corporation.
There are at least three possible explanations for the recent surge in support for government-run businesses. To begin, the federal budget’s inherent constraints motivate agencies to seek for novel sources of revenue (such as private sector and inter-agency outsourcing of services) and to work hard to prevent increases in outlays. Second, corporations have a better chance than traditional government agencies of being exempted from the Freedom of Information Act and other federal regulations pertaining to general management. Lastly, the corporate notion is often seen as supportive of the “New Public Management,” which promotes innovation, risk-taking, and private sector methods in federal administration. Questions about the government company’s legal status, its usefulness in comparison to more traditional agencies, and its limitations as a unit of government institutions are prompted by the continued interest in the corporation.
The goals of good governance are not always best served by a government corporation as an administrative body. It could be a good option sometimes, but it could also be a bad one. Considerable insight into these considerations can be gained by familiarising oneself with the distinctive nature of government management, which is founded on principles of public law. Government Corporation: Defining Terms in Controversy Please define a federal government corporation and describe its defining features. This report uses the term “federal government corporation” to refer to a government agency created by Congress to serve the public interest, which offers a for-profit good or service to the general public with the goal of generating income sufficient to cover its operating costs.
Seventeen organisations qualify as “government corporations” under this criteria. The phrase “government corporation” is not defined anywhere in the United States Code. Government corporation is defined as “a corporation owned or controlled by the Government of the United States” in Title 5 of the United States Code (5 U.S.C.103). The word “government company” is defined to include both “a mixed-ownership Government corporation and a wholly-owned government corporation” in the Government Corporation Control Act ((GCCA) 31 U.S.C.9101-10). After that, it names 28 organizations some of which, like the Pennsylvania Avenue Development Corporation, no longer exist as “government corporations” for the purposes of Title 31’s chapter 91.
Although the GCCA contains a comprehensive list of corporations, various lists of corporations have been made available, each of which varies slightly depending on the definition used by the compiler. Companies range from the massive USPS and FDIC to the obscure Federal Financing Bank in the Treasury Department and Federal Prison Industries (UNICOR) in the Justice Department. The total sum of federally chartered corporations is in some limbo. From time to time, new corporations are formed (like the Valles Caldera Trust in 2000) and older ones are dissolved (e.g., the Rural Telephone Bank in 2008). Government-owned corporations are distinct from GSEs and other quasi-governmental organisations (GSEs).
Fannie Mae is an example of a government-sponsored enterprise (GSE), which is a privately held federally licenced financial institution with statewide reach and lending capabilities that receives an implied federal guarantee to increase its ability to borrow money. Even though GSEs are significant institutions that should be examined more closely, they are just touched on briefly here. Legal and political lines of accountability can be murky with GSEs and other quasi governmental enterprises, in contrast to government corporations. For example, the United States Investigation Services Corporation (USIS) was established in 1996 as an employee stock-ownership plan (ESOP) by the Office of Personnel Management (OPM), a move into the quasi government category that has generated discussion over its legal standing and scope of authority. The Development of the Federal Government Agency As a general rule, the federal government has not intervened in business.
Among the first examples of government ownership in a private corporation are the first and second Banks of the United States. It wasn’t until an 1819 Supreme Court decision that this method was called into doubt, though. Since then, the federal government has been notoriously hesitant to get into joint ventures with the private sector. In 1903, the United States government made its first direct purchase of a privately held firm when it bought the Panama Railroad Company from the French Panama Canal Company. Since then, the federal government has founded a number of corporations, with their proliferation occurring in spurts and typically in response to emergencies.
Corporations began using the option in big numbers for the first time during World War One. Many businesses were later created as a result of the Great Depression of the 1930s (e.g., the Reconstruction Finance Corporation, and the Tennessee Valley Authority). In the end, it was World War II that led to the creation of even more government corporations. Many of the companies formed to deal with these crises were disbanded or merged into more permanent executive branch organisations after they were no longer needed. The Government Corporation Control Act was passed in 1945 in part as a response to the explosion of corporate organisations formed for the war effort.
Budgeting, auditing, debt management, and banking procedures for firms were all standardised as a result of the act. Government corporations are “agencies” of the United States and are therefore subject to all laws regulating agencies, with the exception of provisions of general management laws. This is true despite any special provisions that may be present in their enabling statute. In contrast to state laws, the GCCA does not provide for automatic incorporation.
Congress has to pass a new charter, or piece of enabling law, for each federal government agency. The GCCA also fails to provide a broad explanation of what a government corporation is. It merely lists the entities that are subject to the law. There are a number of other lists of corporations available in addition to the enumeration in the GCCA; these lists vary depending on the definition used by the compiler and include everything from large, well-known corporations like the USPS and the FDIC to small, less obvious corporate bodies like the Federal Financing Bank and the Federal Prison Industries (UNICOR). How can one determine whether a government corporation is the best choice, and what requirements must be completed before a government corporation is founded, in the lack of a general incorporation statute with organisational definitions?
The corporate form of organisation is peculiarly adapted to the administration of government programmes which are predominately of a commercial character those which generate revenue, are at least potentially self-sustaining, and involve a large number of business-type transactions with the public, as President Harry Truman stated in his 1948 budget message. Such programmes’ day-to-day operations necessitate more leeway than is provided by the typical appropriations budget. A corporation’s value typically hinges on whether or not it can interact with customers in the same way that for-profit businesses do. In spite of this, Congress has established numerous “government corporations” and “corporations” that do not qualify under the above descriptions. Some examples of “corporations” that are not for profit and get annual appropriations are the Legal Services Corporation (LSC), the Corporation for Public Broadcasting (CPB), and the International Clean Energy Foundation (ICEF).
Assigning such a status and title was primarily motivated by a desire to shield the recipient from scrutiny by central management authorities and legal jurisdiction. Institutional Traits of a Publicly Owned Company In the federal government, no two agencies are exactly alike. However, there are enough shared features amongst the various businesses to draw some broad conclusions about their management, structure, goals, and practises. Acceptable Status for Legal Purposes Whatever their purpose or how “private” they may seem to the public or to themselves, all government corporations are, in fact, agents of the state and are therefore subject to the constraints placed on them by the Constitution. In the 1995 Lebron decision, the Supreme Court ruled that a government company has some fundamental legal characteristics that cannot be changed through legislation or executive order.
Government status is unaffected by the specifics of the service provided (such as railroad management). The separation between the public and private sectors is based more on legal than economic considerations. The promise and limitations of the government corporation concept can only be grasped with this knowledge. Until Congress decides the government corporation will be entirely private and subject to private law, it will continue to have a governmental character. When the United States government is a party to a lawsuit, the attorney general is in charge of the case.
The Attorney General is the highest-ranking law enforcement official in the country, as established by a number of laws. However, this central authority has been subject to exceptions in a random pattern over the years. For example, the independent regulatory commissions have some autonomy in the courtroom (although the extent of this autonomy varies widely among the different commissioners). The Justice Department has long advocated for better centralised control of legal proceedings, but this position has proven difficult to uphold. In light of the Department of Justice’s (DOJ) limited resources and reasonable reluctance to take on responsibility for routine litigation, there has been a shift toward delegating more discretion and control over DOJ’s legal matters to the various departments and agencies.
It is important to note that many government corporations have a separate legal identity from the United States, as established by their enabling legislation. Most people are vulnerable to and potentially commence civil litigation. The Federal Tort Claims Act provides a limited waiver of immunity for workers of government businesses, which are agencies of the United States (FTCA).”As a body corporate, a government company has unique legal personality distinct from that of the United States,” explains eminent public servant Harold Seidman. Therefore, a company is not protected by the United States’ common law privilege against being sued without its permission. As a general rule, a corporation has the freedom “to choose the character and the necessity for its expenditures, and the way in which they shall be incurred, allowed, and paid.”
The Federal Financing Bank is part of the United States Department of Treasury and provides corporate borrowing options. Allowing corporations the right to file and respond to lawsuits in their own names serves a practical function by reassuring private businesses that they can seek redress in court whenever disputes arise with government-run entities. In contrast, when a regular government agency is involved in a contractual dispute, the claim may involve the Departments of Justice and Treasury, the Office of Management and Budget (OMB), the President, and both chambers of Congress. However, the government business has taken steps to streamline this process, and contractors who ultimately triumph should expect a speedy compensation. Money and Budget When properly implemented, the budget process can serve as an effective management tool for both planning and ensuring responsibility.
The regular agencies of the executive branch are, with few exceptions, subject to the same laws and regulations as the rest of the government in terms of their budgets. Agency budgets are used as management tools by both the President and Congress. On the other hand, government corporations are not subject to the same fiscal oversight as other government agencies. The general taxpayer is not considered the primary source of revenue in these exclusions because it is presumed that customers of a company’s goods and services, rather than the public taxpayer, are. Each government-owned corporation is required to submit a “business-type budget” to the President in accordance with the procedure and time frame established by the President in the budget program’s implementing regulations, per the GCCA as amended in 1982 (96 Stat.1042).
You can expect projections for the corporation’s financial condition and operations for the current and subsequent fiscal years, as well as details on the previous fiscal year’s financial situation and the results of its activities, from this budget programme. An analysis of the surplus or deficit, as well as other statements and information that shed light on the company’s financial situation and operations, such as estimates of operations by major activities, administrative expenses, borrowings, the amount of U.S. Government capital that will be returned to the Treasury during the fiscal year, and appropriations, must be included.(31 U.S.C.9104) The budget plan’s ultimate goal is to give the company enough money to do what it needs to do. After careful consideration and amendment, the President sends these budget programmes to Congress together with the budget for the executive branch.
Statements of financial position, operations, and cash flows; a reconciliation to the budget report of the government corporation (if applicable); and a statement on internal accounting and administrative control systems are all required components of the annual management reports that government corporations must submit to Congress in accordance with the Chief Financial Officers Act of 1990 (CFOA). The majority of funding for the federal government’s traditional agencies comes from appropriations made by Congress. However, the majority, if not all, of the revenue for government-owned enterprises comes from the people who benefit from those enterprises. Accordingly, the latter type of relationship is commercial in nature, and the corporation is obligated to supply services so long as the customers are ready to pay. As a result, businesses can expect income, expenses, and even headcount to shift as they try to meet shifting consumer demands.
Wide-ranging “business type budgets,” often known as “budget plans,” make some members of Congress uneasy. Of course, Congress has the power to change these budget programmes and put restrictions on how corporations can spend their money, but they rarely do so. Legislators sensibly pay only passing attention to corporations in the face of complicated projections and agencies with little direct fiscal impact. In general, Congress pays relatively little attention to companies unless there is a clear political or financial threat. Seidman explains that “in essence,” the business budget “provides for a qualitative rather than a quantitative examination of planned corporate costs.”
Under the GCCA, annual financial audits of government enterprises were GAO’s responsibility until 1975. At the request of GAO, the GCCA was revised to provide for audits of the financial transactions of wholly owned firms at least once every three years, rather than annual audits. The Government Accountability Office (GAO) proposed reinstituting annual audits of government businesses as part of the Civilian Facilities Oversight Act (CFOA) in 1990. The audit will now be done by the corporation’s inspector general “or by an independent external auditor, as selected by the inspector general or, in the absence of the inspector general, the head of the corporation,” in accordance with generally recognised auditing standards. However, the Comptroller General’s authority to audit government agencies remains unaffected.
Geographical Position and Political Authority Government corporations can be found all throughout the world and range widely in terms of organisational structure and political control. There are corporations that are part of executive branches (such the St. Lawrence Seaway Development Corporation, which is part of the Department of Transportation) and those that are completely separate from any government (e.g., the Export-Import Bank). The government has set up corporations so that they are merely financial organisations whose workers are actually government employees (e.g., the Federal Financing Bank in the Department of the Treasury and the Commodity Credit Corporation in the Department of Agriculture). Governing structures for government-owned companies can vary widely.
Whether a government corporation is best managed by a full-time board (like the one that used to run the Tennessee Valley Authority; TVA), a chief executive officer selected by a part-time board and responsible to it (like the one that runs the TVA now; TVA), a part-time board consisting of Cabinet-level officials of other agencies (like the Pension Benefit Guaranty Corporation; PBGC); a mixed board of governmental and private appointees (like the Overseas Each corporate governance strategy has its advantages and disadvantages. Many legislators and lawyers consider the presence of a board of directors to be the defining characteristic of a government business. In 1949, academic Marshall Dimock claimed that a board of directors was required for a government corporation to be legitimate. With its own board of directors and legal personality, a company has more autonomy and potential for success than a regular government agency. Several years later, Harold Seidman questioned the idea that a government-run firm absolutely required a board of directors.
He argued that Dimock’s position was flawed because the federal government had improperly appropriated state policy. Private corporations are mandated by state incorporation rules to ensure representation on boards of directors in cases where multiple parties hold ownership interests. Under this line of thinking, a government firm does not require a board of directors because ownership is vested solely in the government. Seidman brought up the issue that government corporations have existed and functioned without boards of directors. Seidman argued that a government business may function without a board of directors, despite the fact that such an entity is often considered prudent and helpful.
Whether or not you believe that a government corporation needs a board of directors, the reality remains that all but two federal government firms have boards of directors as of right now. Only Ginnie Mae and the St. Lawrence Seaway Development Corporation are exempt from this rule. The National Academy of Public Administration produced a paper in 1981 that was highly critical of boards of directors: This structure, which is drawn from the private business model, has more disadvantages than benefits, and we propose replacing the governing board with an advisory board and giving the administrator complete executive powers instead. Authority routes typically leading from the President or department secretary to the CEO of a company could be disrupted or muddled by the board of directors.
With an advisory board in place, it is crystal clear that the secretary has the authority to give that officer policy instruction, that the officer has the right to report directly to the secretary, and that the officer has the right to negotiate any necessary exemptions from or qualifications to administration or departmental policies and practises with the secretary. There’s no denying that having a board of directors especially a part-time, “outsiders” board between a company’s CEO and government leaders like the President is a good idea. However, it is debatable whether or not such a buffer is appropriate in the larger administrative structure. Notably, given the relative ease of corporate board appointments, critics have accused the White House of using them as a kind of patronage. Boards can be more or less efficient and effective depending on a variety of criteria, including the clarity of the enabling law, the strength of the program’s underlying ideas, and the calibre of its members.
For example, boards with more than 12 members may find it challenging to reach a consensus. Internal elements, such as board size, the primary allegiance of board members (to the corporation or to an outside constituency group), and the board’s connection to corporate management, also play a role in the managerial equation. Oversight As a subset of executive branch agencies, government corporations now receive scant attention from central management. Neither the presidency nor the central administration has a dedicated office to designing government agencies. Nowadays, the public generally views government companies as separate entities, each with its own set of administrative and political needs and a varying degree of political accountability.
OMB and Congress, or more specifically an oversight committee in Congress, conduct periodic audits of certain corporations. Indicators that a firm is functioning in a financially risky manner or the appearance of misconduct are usually the immediate trigger for the oversight. The goals of the GCCA’s backers are at odds with the current status quo, which does not include any kind of comprehensive monitoring of companies as a group. The forerunner to the Office of Management and Budget (OMB) was the Bureau of the Budget (BOB), which played a key role in the passing of the GCCA and established a new department to manage the creation and oversight of government businesses on the President’s behalf. As the 1960s progressed, the central executive staff’s ability to give information, expert advice, or oversight of government corporations and to design and implement uniform policies controlling their formation, authority, and operations waned.
OMB does not consider government-owned firms to be a group of businesses that can be overseen as a whole. In defence of its position, OMB argues that the OMB 2000 restructuring did not affect who is responsible for monitoring government contractors. Therefore, the Resource Management Office (RMO) will continue to review government corporations because it is responsible for the area of government most closely related to the corporation’s mission…. The Office of Management and Budget (OMB) does not conduct a separate review of government corporations from other government organisations that perform similar functions. The duty of ensuring that government businesses are abiding by the provisions of general management legislation falls disproportionately on Congress and its committees due to the way in which the executive branch treats management obligations for government corporations as a class of organisation (e.g., the National Environmental Protection Act, 42 U.S.C.4321).
There is a lack of clarity on basic questions like when and why government businesses should be formed and how they should be used as a result of insufficient central management oversight of government corporations. When it comes to the structure, authority, and financial processes of a government company, there are at least two competing schools of thought. One school of thought argues that government corporations, which include agencies called corporations but which do not perform commercial activities, should be supported, given maximum policy and financial autonomy, and subject to such oversight as is appropriate for other agencies and instrumentalities in the same policy field. The corporation’s statutory duties should be identified in the law that authorised it to exist. The second school of thought contends that a centralised management body should establish criteria and standards before any government firm is formed.
Such requirements, for all legally formed corporate formations, should be codified in a national incorporation legislation. Government companies are unique institutions with their own set of criteria for accountability and monitoring that should be treated as such rather than as if they were simply another part of the executive branch. Organizations of the Government in Times of Change It’s possible that the idea of a government corporation could be used as a viable substitute for the privatisation of some agency, or at least as a stepping stone on the road to that end. Corporation as a transitional alternative is the only part of this that interests us. The transitional government corporation’s primary importance is in demonstrating marketability and asset value, both of which are essential to any successful privatisation initiative.
Conrail is a pioneering example of the concept of a government corporation as a transition vehicle. In 1976, Congress established Conrail, a federal corporation made up of the assets of seven bankrupt private railroads. Some 10 years and $8 billion in federal investment later, Conrail was finally up to industry standards, and private investors began to take notice. While the federal government did collect almost $2 billion from the transaction, the true benefit was the restoration of a functional freight rail line in the country’s northeast. The time spent as a government business was essential for building a track record as a moneymaking endeavour prior to privatisation (divestiture).
A full privatisation of the U.S. Enrichment Corporation (USEC) was recently accomplished, albeit with varied consequences. Up until 1993, the USEC was a fully functional branch of the DOE, managing enrichment facilities in Kentucky and Ohio. The factories began making HEU (highly enriched uranium) for the military in the 1950s. New overseas competitors successfully challenged the United States as times changed.
Established as a government-owned corporation, U.S. Enrichment Corp.(USEC) was created by the Energy Policy Act of 1992 (; 106 Stat. The law was written to “privatise” the two facilities so that they may compete on the global market. In 1995, the USEC presented a privatisation plan to the President and Congress. According to the blueprint, a company may sell itself in a number of ways, but the two most common involved either going public or merging with another business.
Like with Conrail, the IPO route was settled on after much deliberation. On July 28, 1998, the federal government launched an initial public offering of stock, which brought in an estimated $1.9 billion. However, the process of USEC’s transition shed light on a persistent challenge faced by privatisation initiatives. Even if Congress creates a corporation with the intention of making it private, it may nonetheless want the business to play a role in carrying out public policies. In this case, Congress intended the company to help carry out an important foreign policy goal by paying inflated prices for a large quantity of Russian enriched uranium that would have gone toward Russian weaponry otherwise.
The HEU agreement stipulated that in exchange for the enriched uranium used in Russian nuclear weapons, the USEC would provide Russia with an equal quantity of natural (unenriched) uranium for export. From the company’s point of view, this arrangement was not sustainable, thus in October 1999, the USEC petitioned Congress for “relief.” A further feature of a private company, as defined by law, is the ability to abandon an endeavour if it is determined that continuing it would be detrimental to the corporation’s fiduciary interests. The USEC board of directors recently made such a decision, much to the dismay of DOE officials. The Department of Energy (DOE) divested some assets to the United States Enrichment Corporation (USEC), including the rights to market a new enrichment technology dubbed “atomic vapour laser and isotope separation” (AVLIS), in which DOE had invested more than $2 billion.
The USEC board of directors decided on June 9, 1999 that AVLIS wasn’t financially feasible, thus they scrapped it. Differentiating between a government agency and a private company, the board’s decision highlighted these differences. For whatever reason, the federal government may decide to forego the transition corporation route when selling off a commercial activity or asset. The Department of Energy decided to sell its stake in the Elk Hills National Petroleum Reserves fields in California without first forming a transition corporation, as was suggested by an outside assessment. Conclusion When creating or reforming a federal agency with the potential to generate cash, the government corporation type of federal agency is a viable alternative to explore.
However, it’s important to keep in mind that there is no blanket legal provision that defines what government corporations are. Congress and the executive branch looked at the numerous corporate bodies and enumerated them when crafting the GCCA, rather than defining them based on required qualities. Some corporations, such as the United States Postal Service, have been left out of the GCCA enumeration due to the lack of structure, while others, which are arguably not corporate in purpose and authority (such as the Corporation for National and Community Service), have been included. Government corporations as an institutional category are now subject to minimal management control from either the President or Congress. The little regulation that exists typically applies only within a single firm.
In the House and Senate, businesses are assigned to committees with specific subject-matter expertise. Corporate bodies should have both subject matter and managerial control, according to a GAO assessment, and the GCCA should be reformed to codify the differences between corporate forms. The Federal Deposit Insurance Corporation is an example of a government corporation that serves as a permanent agency to carry out a continuing governmental function; the Pennsylvania Avenue Development Corporation is an example of a government corporation that serves as a temporary agency; and the Government Services Administration is an example of a government corporation that serves as a transition agency to ease the process of transferring a government agency or programme to the private sector (e.g., the U.S. Enrichment Corporation). These alternatives show the adaptability of the government corporation idea and could serve as templates for expanding the corporate structure to other agencies funded by appropriations (e.g., the U.S.).
Patent and Trademark Office and the U.S. Mint). Several proposals have been made to transform the latter two organisations into government-owned corporations because they match the minimum requirements for such an entity. Although they are not well understood in executive management circles, the outlook for government corporations as a type of federal organisation seems to be positive. It’s possible that the executive branch and Congress will have to come up with new organisational structures to accommodate the public law responsibilities of governmental status and the flexibility that comes with corporate bodies relying upon revenues for services.
A corporation’s success or failure may hinge on the quality of the law that sets it up as a business. It is possible for a government corporation to become a liability to the executive branch and have a short lifespan if the conceptual basis of the law establishing the corporation or the economic assumptions therein are flawed, as was allegedly the case with the Synthetic Fuels Corporation in the late 1970s. In contrast, if a federal government corporation is established in a way that is consistent with public law, governmental management principles, and good economics, then it may serve as an innovative tool for advancing elected officials’ policy goals. Even though this report’s focus has been on the unique qualities of federal government corporations, it’s vital to note the ways in which they are similar to other federal agencies. Government corporations have the same mandate as ordinary, appropriations-funded agencies, which is to carry out the laws that Congress has enacted.