FROM THE OFFICE OF PUBLIC AFFAIRS

H.R. - Government Waste, Fraud, and Error Reduction Act of 1998

[Discussion draft of February 17, 1998]

Title I - General Management Improvements

Sec. 101 - Repeal of Obsolete Provisions Relating to Financial Statements of Agencies

Comments: We support this technical change and suggest that the proposed bill also strike subsection (h) of 31 U.S.C. 3515 as obsolete.

Title II - Improving Federal Debt Collection Practices

Sec. 201 - Miscellaneous technical corrections

(a) Child Support Enforcement

Comments: We support the expansion of the Federal payments available to collect past-due child support through Treasury's administrative offset program.

(b) Charges by Debt Collection Contractors

Comments: This provision would provide clarity and consistency in the fees that may be charged for the collection of debt owed to the Federal government. It would also preempt State laws that might limit the amounts that can be received by federal debt collection contractors. We believe that before any such preemption is enacted there should be consultation with States to assess fully the impact of this provision on State laws and commercial practices. Consistent with Executive Order 12612 issued by President Reagan on October 26, 1987, appropriate officials and organizations representing the States should be consulted in developing national standards that potentially limit the policy making discretion of the States.

(c) Background Checks of Contractor Employees

Comments: This provision would shift the costs associated with the performance of background checks from agencies currently paying for them to the private collection contractor, and in turn, to the debtor as the costs associated with the collection of a debt may, in most circumstances, be passed on to the debtor. We therefore support this provision. This section should be modified, however, to ensure that the background check performed by the contractor meets Treasury or other contracting agency standards and that any background checks performed are made available, on request, to Treasury or the contracting agency.

(d) Debt Sales

Comments: We are concerned with the readiness of Federal agencies to comply with a requirement to sell debt and about the role of Treasury in government-wide debt sales in light of initiatives underway by interagency groups such as the Federal Credit Policy Working Group. We are also concerned about the relationship the DCIA provisions on debt sales may have to administration privatization initiatives. We suggest deferral of enactment of this position pending further internal administration coordination on this issue and discussions with interested parties in the legislative branch.

(e) Repeal of Requirement to Issue Wage Garnishment Regulations

Comments: We believe this provision is not necessary and could result in a lack of consistent standards and procedures. Treasury issued a Notice of Proposed Rulemaking on wage garnishment on November 21, 1997 and expects to issue a final rule in April, 1998.

(f) Verification of Debtor Employment Information by Private Collection Contractors

Comments: We believe additional background is needed regarding the impact of this provision on State laws and State commercial practices. As noted in our comments to subsection (b) of this section, consistent with Executive Order 12612 issued by President Reagan on October 26, 1987, appropriate officials and organizations representing the States should be consulted in developing national standards that potentially limit the policy making discretion of the States.

(g) Clerical Amendment (Tax Refund Offset)

Comments: We support this clerical amendment and suggest an additional clerical amendment re-numbering this section which currently has two paragraphs (h)(1).

(h) Correction of References to Executive or Legislative Agency

Comments: We support a correction that would strike "executive or legislative" agency each place it appears and substitute "executive, judicial, or legislative agency." This change has already been accomplished, however, in the specific sections listed in the draft proposal.

(i) Correction of References to Federal Agency

Comments: Changing the term "Federal agency" to "agency" does not provide needed clarification on what is meant by the term "Federal agency." For purposes of consistency and clarity, we suggest changing the term "Federal agency" to "executive, judicial or legislative" agency where appropriate.

Sec 202 - Barring Delinquent Debtors from Obtaining Federal Loans

Comments: We suggest that input be obtained from the Department of Justice (DOJ) regarding the impact this provision would have on other laws that govern Federal contracts and Federal employment. Denial of Federal employment to a delinquent debtor may, on the one hand, motivate the debtor to pay and is consistent with a desire not to reward those who owe delinquent debt with Federal employment. On the other hand, Federal employment of an otherwise qualified individual who owes a debt would provide a readily available source of repayment. In the area of denial of licenses and permits, we are concerned that the language may be too broad and thus difficult to administer.

For example, it may not be beneficial to enforce this provision against an individual seeking a permit to enter a national park. We suggest a requirement that standards be issued by Treasury under which agencies could determine whether imposition of such a bar would be in the best interest of the government.

Sec. 203 - Collection and compromise of nontax debts

(a) Use of Private Collection Contractors and Federal Debt Collection Centers.

Comments: The requirement for Treasury to refer debt to the person(s) most successful in collecting the type of debt may impose unreasonable burdens because of the difficulty of making such a determination in particular cases. It would also conflict with the requirement to maintain competition. We suggest that such success be a factor to be taken into account in determining the person most appropriate to collect the debt.

Administrative costs are generally borne by the contractor and built in to the contract price.

We support giving States the option of requesting that Treasury refer child support debts to private collection contractors.

(b) Limitation on Discharge Before Use of Private Collection Contractor or Debt Collection Center

Comments: If this section is directed at the actions the Financial Management Service or other government debt collection centers must take before terminating collection action on a debt, we suggest adding referral to the Department of Justice as an alternative prior to terminating collection action. If this section is directed at creditor agencies, it may be too broad in that it does not exclude debts that are exempt from cross-servicing, for example, debts in litigation or foreclosure. One way to narrow the scope would be to exempt debts that are exempt from cross-servicing. We also suggest clarification of what is meant by "termination."

Sec. 204 - Wage Garnishment

Comments: We suggest that input be obtained from the Department of Labor regarding the impact of this proposal on the anti-alienation provisions of the Employee Retirement Income Security Act (ERISA) (29 U.S.C. 1056(d)) and other laws and policies relating to pension plans. It may be prudent to gain some experience administratively garnishing wages before this authority is expanded.

Sec. 205 - Establishment of Liens

Comments: We believe this provision should be given further study because it could have extraordinarily far reaching and disruptive consequences for the lending community, for title companies, for property owners and for others involved in real estate transactions. Such a provision could potentially create clouds on title to real property throughout the country and create significant burdens for affected parties. Additionally, the creation of a seven year lien may interfere with an agency's ability to write-off debt and report such debts to the IRS as discharged.

Title III - Sale of Debts Owed to United States

Sec. 301 - Authority to Sell Debts

(a) Sales Authorized

Comments: We believe that the provision requiring agencies to "maximize the proceeds" from sales is unnecessary, may create a basis for unsuccessful bidders to raise protests to sales, and may place unintended limits on creative sales vehicles. We suggest that the language give agencies discretion to conduct sales in the manner the agency determines to be most appropriate, and shall give consideration to whether the manner chosen will maximize proceeds.

Sec. 302 - Requirement to Sell Certain Debts

Comments: We believe that a mandatory requirement to sell debt at a statutorily specified time after a loan is disbursed, whether or not the loan is delinquent, would not be in the best interest of the United States and may in fact encourage delinquencies. For example, purchasers may bid less for debts that they know the government is under a mandate to sell. Some debts, such as Department of Education student loans, may increase in value over time and thus an early sale may not result in the greatest return. We are also concerned that mandated sales would not allow sufficient time for Federal agencies to fully pursue the collection tools available to them. Aggressive implementation of the collection tools available to Federal agencies, such as wage garnishment and administrative offset, may result in greater receipts than sale. Additionally, a requirement for mandatory sale could create a perverse incentive for debtors to allow their debts to become delinquent in the hope that the obligation may be sold at a discount to a purchaser who would have an incentive to compromise. Furthermore, if these provisions are applied to debt under the U.S. government's foreign assistance programs, they could hamper recognition of the U.S. foreign policy concerns, as well as efforts to maximize debt collections in the long run.

Finally, it is premature to mandate such provisions, especially pertaining to the sale of performing loans, until the administration has more time to determine how these requirements would be part of the broader privatization strategy.

Title IV - Treatment of High Value Debts

Sec. 401 - Annual Report on High Value Debts

Comments: Clarification is needed regarding whether or not this requirement is limited to high value debts in a delinquent status and this provision should exclude tax debt.

Sec. 402 - Debarment from Obtaining Federal Loans

Comments: We believe this provision is unnecessary as Section 3720B already bars delinquent debtors from loan eligibility regardless of the amount of the debt.

Sec. 403 - Inspector General Review

Comments: Clarification is needed regarding whether this is limited to delinquent high value debt, and as to the relationship between this provision and the requirement that agencies seek approval from DOJ on all compromises of debt in excess of $100,000. Additionally, this provision should exclude tax debt.

Sec. 404 - Requirement to seek seizure and forfeiture of assets securing high value debts

Comments: We are concerned that there may be circumstances in which prompt seizure and forfeiture of collateral would not be desirable (e.g., environmentally damaged property). Additionally, we have concern about how this provision would tie in, if at all, with sec. 206, which provides that a delinquent debt establishes a lien on the debtor's real property. In addition, the use of the term "forfeiture" raises serious questions about its relationship to the asset forfeiture laws employed in connection with drug and money laundering enforcement. We therefore would strongly suggest consultation with the Department of Justice.

Title V - Federal Payments

Sec. 501 - Transfer of Responsibility to Secretary of the Treasury with Respect to Prompt Payment

Comments: We support this transfer of responsibility. Treasury already has a significant role in implementing the Prompt Payment Act. This would provide Treasury with the flexibility to conform prompt pay requirements to new payment technologies.

502 - Promoting electronic payments

Comments: These amendments would provide needed flexibility to promote innovative payment technologies. However, a provision requiring vendors to pay interest is not necessary and could create an administrative burden on agencies.