Full text of "Administration proposal threatens first amendment rights of government grantees and contractors : hearing before a subcommittee of the Committee on Government Operations, House of Representatives, Ninety-eighth Congress, first session, March 1, 1983"

ADMINISTRATION PROPOSAL THREATENS FIRST
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HEARING

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON

GOVERNMENT OPERATIONS

HOUSE OF REPRESENTATIVES

NINETY-EIGHTH CONGRESS

FIRST SESSION

MARCH 1, 1983

Printed for the use of the Committee on Government Operations

ADMINISTRATION PROPOSAL THREATENS FIRST

AMENDMENT RIGHTS OF GOVERNMENT

GRANTEES AND CONTRACTORS

HEARING

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON

GOVERNMENT OPERATIONS

HOUSE OF REPRESENTATIVES

NINETY-EIGHTH CONGRESS

FIRST SESSION

MARCH 1, 1983

Printed for the use of the Committee on Government Operations

U.S. GOVERNMENT PRINTING OFFICE
20-644 O WASHINGTON : 1983

COMMITTEE ON GOVERNMENT OPERATIONS

JACK BROOKS,

DANTE B. FASCELL, Florida
DON FUQUA, Florida
JOHN CONYERS, Jr., Michigan
CARDISS COLLINS, Illinois
GLENN ENGLISH, Oklahoma
ELLIOTT H. LEVITAS, Georgia
HENRY A. WAXMAN, California
TED WEISS, New York
MIKE SYNAR, Oklahoma
STEPHEN L. NEAL, North Carolina
DOUG BARNARD, Jr., Georgia
BARNEY FRANK, Massachusetts
TOM LANTOS, California
RONALD D. COLEMAN, Texas
ROBERT E. WISE, Jr., West Virginia
BARBARA BOXER, California
SANDER M. LEVIN, Michigan
BUDDY MacKAY, Florida
MEL LEVINE, California
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, Jr., South Carolina
JOE KOLTER, Pennsylvania
BEN ERDREICH, Alabama

Texas, Chairman

FRANK HORTON, New York

JOHN N. ERLENBORN, Illinois

THOMAS N. KINDNESS, Ohio

ROBERT S. WALKER, Pennsylvania

LYLE WILLIAMS, Ohio

WILLIAM F. CLINGER, Jr., Pennsylvania

RAYMOND J. McGRATH, New York

JUDD GREGG, New Hampshire

DAN BURTON, Indiana

JOHN R. McKERNAN, Jr., Maine

TOM LEWIS, Florida

ALFRED A. (AD McCANDLESS, California

LARRY E. CRAIG, Idaho

William M. Jones, General Counsel

John E. Moore, Staff Administrator

Donna Fossum, Professional Staff Member

John M. Duncan, Minority Staff Director

Legislation and National Security Subcommittee

JACK BROOKS, Texas, Chairman

DANTE B. FASCELL, Florida FRANK HORTON, New York

DON FUQUA, Florida JOHN N. ERLENBORN, Illinois

ELLIOTT H. LEVITAS, Georgia WILLIAM F. CLINGER, Jr., Pennsylvania

HENRY A. WAXMAN, California DAN BURTON, Indiana

STEPHEN L. NEAL, North Carolina
TOM LANTOS, California

Richard C. Barnes, Staff Director
Cynthia W. Meadow, Professional Staff Member

(II)

CONTENTS

Page

Hearing held on March 1, 1983 1

Statement of —

Biddle, A. G. W., president, Computer & Communications Industry Asso-
ciation 252

Bothwell, Robert O., executive director, National Committee for Respon-
sive Philanthropy 283

Botwinick, Michael, director, Corcoran Gallery of Art, Washington, D.C.... 147

Bowsher, Charles A., Comptroller General of the United States, accompa-
nied by Milton J. Socolar, Special Assistant to the Comptroller General. 57

Brooks, Hon. Jack, a Representative in Congress from the State of Texas,
and chairman, Legislation and National Security Subcommittee: Open-
ing statement 1

Bucy, June, chief executive officer, the National Network of Runaway
and Youth Services, Inc 154

Clayman, Jacob, president, National Council of Senior Citizens 298

Cooper, Maudine R., vice president, National Urban League 116

Daoust, George A., Jr., executive director, National Council of Technical
Service Industries 182

Deans, Thomas S., executive director, Appalachian Mountain Club 135

Frank, Hon. Barney, a Representative in Congress from the State of
Massachusetts 70

Jones, Donald G., executive secretary, Wisconsin Community Action Pro-
gram Association, Inc., Madison, Wis 235

Kemp, Evan J., Jr., executive director, Disability Rights Center, Washing-
ton, D.C., Disability Rights Education and Defense Fund, Inc., accompa-
nied by Bonnie Milstein, attorney, Center on Law and Social Policy 194

Kerschner, Paul A., associate director, division of legislation, American
Association of Retired Persons 140

Kessler, John D., vice president for public affairs, American Heart Asso-
ciation 294

Levine, Hon. Mel, a Representative in Congress from the State of Califor-
nia 10

McCloskey, Peter F., president, Electronic Industries Association, accom-
panied by Robert C. Johnson, chairman, multiassociation task group on
Circular A-122 276

Moody, Hon. Jim, a Representative in Congress from the State of Wiscon-
sin 25

O'Connell, Brian, president, Independent Sector 72

Rettgers, Forrest I., executive vice president, National Association of
Manufacturers, accompanied by Gary D. Lipkin, assistant general coun-
sel 162

Rubin, Florence, director, League of Women Voters 101

Schroeder, Hon. Patricia, a Representative in Congress from the State of
Colorado 19

Shanley, Mildred, staff counsel, Catholic Charities of the Diocese of
Brooklyn 87

Shattuck, John, Washington office, American Civil Liberties Union, ac-
companied by Thomas J. Madden, partner, and David H. Remes, asso-
ciate, Kaye, Scholer, Fierman, Hays & Handler, Washington, D.C 196

Thompson, Robert T., chairman, board of directors, U.S. Chamber of
Commerce, accompanied by Christine A. Russell, legislative counsel,
Small Business Center, and J. H. Joseph, vice president, domestic

policy 255

iiiD

Statement of Continued Pa « e

Toups, John M., president and chief executive officer, Planning Research
Corp., on behalf of Professional Services Council, accompanied by Bert
Concklin, director, government relations, Planning Research Corp 266

Towns, Hon. Edolphus, a Representative in Congress from the State of
New York 15

West, William A., executive director, Association for Retarded Citizens,

Harrisburg, Pa 246

Weymueller, Robert G., director of government relations, American Lung
Association 95

Wright, Joseph R., Jr., Deputy Director, Office of Management and

Budget, accompanied by Bob Bedell, Deputy General Counsel 28

Letters, statements, etc., submitted for the record by —

Bothwell, Robert O., executive director, National Committee for Respon-
sive Philanthropy: Prepared statement 286-293

Botwinick, Michael, director, Corcoran Gallery of Art, Washington, D.C.:
Prepared statement 150-153

Bowsher, Charles A., Comptroller General of the United States: Prepared
statement 60-65

Bucy, June, chief executive officer, the National Network of Runaway
and Youth Services, Inc.: Prepared statement 157-160

Clayman, Jacob, president, National Council of Senior Citizens: Prepared

statement 301-304

Cooper, Maudine R., vice president, National Urban League: Prepared
statement 119-134

Daoust, George A., Jr., executive director, National Council of Technical
Service Industries: Prepared statement 185-192

Deans, Thomas S., executive director, Appalachian Mountain Club: Pre-
pared statement 137-139

Horton, Hon. Frank, a Representative in Congress from the State of New
York: Prepared statement 5-9

Jones, Donald G., executive secretary, Wisconsin Community Action Pro-
gram Association, Inc., Madison, Wis.: Prepared statement 239-245

Kerschner, Paul A., associate director, division of legislation, American
Association of Retired Persons 143-146

Levine, Hon. Mel, a Representative in Congress from the State of Califor-
nia: Prepared statement 12-14

McCloskey, Peter F., President, Electronic Industries Association: Pre-
pared statement 278-282

Madden, Thomas J., partner, Kaye, Scholer, Fierman, Hays & Handler,
Washington, D.C.:

Information concerning court cases 200

Prepared statement and submissions to Chairman Brooks'
questions 202-234

Moody, Hon. Jim, a Representative in Congress from the State of Wiscon-
sin: Prepared statement 26-27

O'Connell, Brian, president, Independent Sector: Prepared statement 75-86

Remes, David H., associate, Kaye, Scholer, Fierman, Hays & Handler,
Washington, D.C.: Prepared statement and submissions to Chairman
Brooks' questions 202-234

Rettgers, Forrest I., executive vice president, National Association of
Manufacturers: Prepared statement 165-181

Rubin, Florence, director, League of Women Voters: Prepared state-
ment 104-115

Schroeder, Hon. Patricia, a Representative in Congress from the State of
Colorado: Prepared statement 21-24

Shanely, Mildred, staff counsel, Catholic Charities of the Diocese of
Brooklyn: Prepared statement 90-94

Thompson, Robert T., chairman, board of directors, U.S. Chamber of
Commerce: Prepared statement 259-263

Toups, John M., president and chief executive officer, Planning Research
Corp., on behalf of Professional Services Council: Prepared
statement 269-274

Towns, Hon. Edolphus, a Representative in Congress from the State of
New York: Prepared statement 16-18

West, William A., executive director, Association for Retarded Citizens,
Harrisburg, Pa.: Prepared statement 249-251

Letters, statements, etc., submitted for the record by Continued Page

Weymueller, Robert G., director of government relations, American Lung

Association: Prepared statement 98-99

Wright, Joseph R., Jr., Deputy Director, Office of Management and

Budget Prepared statement 31-43

APPENDIXES

Appendix 1. — Proposed changes to OMB Circular A-122 307

Appendix 2. — CRS analysis : 310

Appendix 3. — Statements and letters regarding OMB Circular A-122 369

ADMINISTRATION PROPOSAL THREATENS
FIRST AMENDMENT RIGHTS OF GOVERNMENT
GRANTEES AND CONTRACTORS

TUESDAY, MARCH 1, 1983

House of Representatives,
Legislation and National Security Subcommittee

of the Committee on Government Operations,

Washington, D.C.

The subcommittee met, pursuant to notice, at 9:30 a.m., in room
2154, Rayburn House Office Building, Hon. Jack Brooks (chairman
of the subcommittee) presiding.

Present: Representatives Jack Brooks, Henry A. Waxman, Tom
Lantos, Frank Horton, and William F. Clinger, Jr.

Subcommittee staff present: Richard C. Barnes, staff director;
Cynthia Meadow, professional staff member; Linda Shelton, office
manager; Mary Alice Oliver, secretary; full committee staff: Wil-
liam M. Jones, general counsel; Robert Brink and Donna Fossum,
professional staff members; John M. Duncan, minority staff direc-
tor; Thomas F. Houston and Stephen M. Daniels, minority profes-
sional staff members, Committee on Government Operations.

OPENING STATEMENT OF CHAIRMAN BROOKS

Mr. Brooks. The subcommittee will come to order.

The right to free speech, to due process of law, and to approach
the Government for the redress of grievances are some of the most
fundamental precepts of our Constitution. Judging from the outcry
generated by a recent proposal by OMB, the DOD, the GSA, and
NASA to revise regulations concerning cost principles for contrac-
tors and grantees, these constitutional freedoms appear to be in
grave danger.

Under the guise of better management, the administration wants
to demand that a host of businesses, organizations and individuals
across this Nation give up their right to participate in the govern-
mental process if they are to receive Federal grants and contracts.
A wide spectrum of organizations and individuals from all walks of
life have attacked the proposals as a "gag rule" which would throt-
tle the free speech of Federal contractors and grantees.

In late January, the administration proposed changes in OMB
Circular A- 122 and the procurement regulations of DOD, GSA, and
NASA that, on their face, were designed to prevent the recipients
of Government contracts and grants from using Federal funds to
support lobbying activities. I fully agree with the premise that
unless specifically authorized, Federal dollars should not be spent

(1)

by contractors and grantees to lobby the Congress. Opponents of
the administration's proposed revisions allege, however, that the
dragnet approach is so broad as to sweep into its path legitimate
lobbying activities carried on with non-Federal funds.

The proposed regulations mark an abrupt departure from long-
standing principles of cost allocation between Federal and non-Fed-
eral funds. Rather than simply banning the use of Federal dollars
for lobbying activities, the proposed regulations may, in effect, con-
dition the acceptance of Government funds upon the waiver of con-
stitutional rights. The proposed changes would define "political ad-
vocacy" so broadly as to include virtually any attempt to comment
on public policy issues.

When the Reagan administration came to town 2 years ago and
began slashing away at Federal social programs, they claimed that
nobody would really be hurt by those budget cuts. The "truly
needy," they said, would still be taken care of by the administra-
tion's "safety net" and that the gap left by Federal cutbacks would
be filled by local nonprofit social service agencies. Now it appears
that the administration would deny those same local nonprofit or-
ganizations — the very groups who have firsthand real-life experi-
ence with how changes in social programs affect people — the oppor-
tunity to comment on regulatory reform proposals, on block grant
implementation, on legislation, and other vitally important activi-
ties of Federal, State, and local government.

It is important to note, however, that it is not only organizations
representing the poor, the elderly, the handicapped, and children
that have sounded the alarm about this proposal. They are joined
in their anguish by such "left wing," "bleeding heart" organiza-
tions as the U.S. Chamber of Commerce, the National Association
of Manufacturers, the Electronic Industries Association and others,
hundreds of others.

It is heartwarming to see the ACLU, the U.S. Chamber, the
League of Women Voters, the American Heart Association, and the
Ford Motor Co. embrace each other in this joint effort to resist
Government oppression. I applaud them all for their alertness to
the need to exercise their civic responsibilities.

Late last Friday the administration issued a statement saying
that even though the comment period for the current proposal had
not yet expired, they were preparing to issue a revised proposal.
Apparently the unfairness and the impracticality of this proposal
has finally come to the attention of important officials at the other
end of Pennsylvania Avenue. We are proceeding with this hearing,
however, to assure that the issues are given a full public airing.

During the course of this hearing we intend to probe what
prompted this proposal, if a serious problem exists which needs to
be solved, whether a more tempered approach is advisable, what
effect it will have on Federal contractors and grantees, its effect on
the ability of Government agencies and the Congress to make in-
formed decisions, and the legality and the constitutionality of these
proposals.

Over 30 witnesses are scheduled to testify and numerous others
are submitting written statements. They represent hundreds of
major organizations throughout this country. I have asked all the
witnesses to limit their prepared comments to no more than 5 min-

utes in the hope that we can hear all of them. I hope that the testi-
mony received at this hearing will be heard by appropriate officials
of the executive branch and that they will be encouraged to exer-
cise their responsibilities with a sense of fairness and equity.

Before proceeding I would like to call on the senior Republican
leader of the committee, Mr. Frank Horton, the distinguished
member from New York. .

Mr. Horton. Thank you, Mr. Chairman.

First of all I want to say that this proposed regulation came to
my attention when I was having office hours in my district. Two
weeks after we were sworn in, I had office hours in Oswego,
Oneida, Cayuga, Seneca, and Wayne Counties. I saw over 3,000
people. Several of those people came in to me and said, "You know,
next year I can't come in and talk to you." I said, "Why not?" And
they said, "Because of this proposed regulation." But when I first
received a copy of it, I just couldn't believe it. I got in touch with
my staff and was pleased to learn that we were having this hearing
today.

I am very much opposed to this proposed regulation, and I was
glad to hear from Mr. Wright of OMB this morning that his agency
intends not to go forward with it.

Mr. Chairman, I have a rather lengthy statement this morning. I
would like to make part of it, and I would like to ask unanimous
consent to revise and extend my remarks and include the full text
of my statement in the record.

Mr. Brooks. Without objection.

Mr. Horton. Mr. Chairman, I find myself in a difficult position.
An administration headed by a President of my own political party
has issued a proposed regulation which is under review by my com-
mittee. I want to support the administration. I generally agree
with them. All other things being equal, I would support them
even if I were not overly enthusiastic about one of their proposals.
But much as I would like to be able to defend the administration
on this issue, I cannot.

I support the principle that private groups should not use Gov-
ernment funds to lobby their government; on that, Mr. Chairman, I
certainly agree with you. I don't think we ought to be issuing
grants for people to lobby. A Government agency should not award
grants and contracts to organizations which use those awards just
to further their own political aims.

But the proposed regulation before us this morning in addressing
these concerns goes way beyond the bounds of propriety. It says to
citizens that if their salaries are a result of a Government contract
or grant, they cannot comment during working hours on Govern-
ment activities. They may not communicate with legislators or ex-
ecutive branch policymakers. They may not even in the normal
course of business — to quote item b.(3) of the proposal — try to influ-
ence governmental decisions through an "attempt to affect the
opinions of the general public or any segment thereof." That's a
gag rule if I've ever heard of one.

As a legislator concerned with the proper operation of all Gov-
ernment activity, I am strongly opposed to any regulation that
would limit the opportunities of citizens working on Government
grants and contracts from talking with me about their work.

We are not talking here about what expenses can legitimately be
claimed as reimbursable under an award or even what can be tax
deductible. We are talking about what a citizen can do with his
own money on time not paid for by the Government. If any portion
of his salary comes from a cost-based contract or grant, the propos-
al doesn't say that he can't use Government money to express an
opinion about a public issue. It says that if he receives any Govern-
ment money through an award based on cost, he cannot express an
opinion on public matters and still be compensated.

Mr. Chairman, this is positively outrageous. I cannot believe that
this could possibly be the intent of the administration, and yet the
language is painfully clear.

So I am very happy that I was informed this morning that Mr.
Wright later will indicate that this particular proposal is out the
window, but I agree with you that we should hear comments from
people that are concerned about it. I am concerned about it, and I
hope the administration is, too. As I told Mr. Wright, there are
always two ways to do something. One is the easy way and the
other one's the tough way. The administration is going about this
project the tough way. I think that if they have a problem, they
had better tell us about it; look at the problem very carefully and
then come up with something that is reasonable and meaningful. I
don't think anybody in this room wants to have Federal money go
for lobbying. That is not the intent of the taxpayers and everybody
in this room is a taxpayer.

But on the other hand, we certainly don't want to stifle public
opinion and the right of people to speak out on issues and problems
that concern them. This was certainly not the way to prevent Fed-
eral money from being used for lobbying. And if there is any at-
tempt to do it in the future, I think that the administration better
be very careful with what it proposes, and I would hope that they
would check with our committee before they get too far toward
making it public.

[Mr. Horton's prepared statement follows:]

CONGRESSMAN FRANK HORTON
29th District, New York

Mr. Chairman, I find myself in a difficult position this morning.
An Administration headed by a President of my own political party
has issued a proposed regulation which is under review by my committee,

I WANT TO SUPPORT MY ADMINISTRATION. I GENERALLY AGREE WITH THEM. All
OTHER THINGS BEING EQUAL, I WOULD SUPPORT THEM EVEN IF I WERE NOT OVERLY
ENTHUSIASTIC ABOUT ONE OF THEIR PROPOSALS.

Rut much as I would like to be able to defend the Administration,
on this issue I cannot,

I support the principle that private groups should not use govern-
ment funds to lobby their government. Government agencies should not
award grants and contracts to highly ideological organizations which use
those awards to further their own political aims.

But Mr. Chairman, the proposed regulation before us this morning in

ADDRESSING THESE CONCERNS GOES BEYOND THE BOUNDS OF PROPRIETY, It SAYS

to citizens that if their salary is a result of a government contract or
grant they cannot comment during working hours on government activity.
They may not communicate with legislators or executive branch policy-
makers. They may not even, in the normal course of business, to quote

ITEM (b)(3) OF THE PROPOSAL, "ATTEMPT TO INFLUENCE GOVERNMENTAL DECISIONS
THROUGH AN ATTEMPT TO AFFECT THE OPINIONS OF THE GENERAL PUBLIC OR ANY
SEGMENT THEREOF." As A LEGISLATOR CONCERNED WITH THE PROPER OPERATION
OF ALL GOVERNMENT ACTIVITIES, I AM STRONGLY OPPOSED TO ANY REGULATION
THAT WOULD LIMIT THE OPPORTUNITIES OF CITIZENS WORKING ON GOVERNMENT
GRANTS AND CONTRACTS FROM TALKING WITH ME ABOUT THEIR WORK.

This proposal, however, does not stop here, The regulation would
also apply to all citizens if any part of their salary ~ no matter how
small — was paid from a federal award, to these people this regulation
says no matter how much may you make privately if any part of your
salary comes from a federal contract or grant, you may not "attempt to
affect the opinions of (any segment of) the general public" "" any other

PERSON, THAT IS — WITH REGARD TO ANY "GOVERNMENTAL DECISION." We're
NOT TALKING HERE ABOUT WHAT EXPENSES CAN LEGITIMATELY BE CLAIMED AS
REIMBURSABLE UNDER AN AWARD, OR EVEN WHAT CAN BE TAX"DEDUCTI BLE . We're
TALKING ABOUT WHAT A CITIZEN CAN DO WITH HIS OWN MONEY, ON TIME NOT PAID
FOR BY THE GOVERNMENT, IF ANY PORTION OF HIS SALARY COMES FROM A COST-
BASED GOVERNMENT GRANT OR CONTRACT. THE PROPOSAL DOESN'T SAY THAT HE
CAN'T USE HIS OWN MONEY TO EXPRESS AN OPINION ABOUT A PUBLIC ISSUE, IT
SAYS THAT J_F HE RECEIVES ANY GOVERNMENT MONEY THROUGH AN AWARD BASED ON
COST, HE CANNOT EXPRESS AN OPINION ON PUBLIC MATTERS AND STILL BE
COMPENSATED .

Mr. Chairman, that is positively outrageous, I cannot believe that
this could possibly be the intent of the administration ~ yet the
language is painfully clear,

we all know that a government award is a privilege, mot a right,
and that the government may therefore place certain conditions on its
recipients. we may argue about which conditions are appropriate in
which cases. But all Americans must stand together in condemning any
attempt to forbid anyone who accepts any federal money from using his
own resources to speak his mind on public issues.

if we permit this restriction on recipients of cost"based awards,
where will the limitations stop? mlght they be extended to abridgements
of other constitutional rights? could anyone who takes federal money be
required to attend a certain church? glve up his security against

UNREASONABLE SEARCH AND SEIZURE? LOSE HIS VOTE? MlGHT THE RESTRICTIONS
EXTEND TO OTHER CLASSES OF PEOPLE WHO RECEIVE FEDERAL FUNDS " GOVERN-
MENT EMPLOYEES OR SOCIAL SECURITY BENEFICIARIES, FOR EXAMPLE? HOW ABOUT
RECIPIENTS OF TAX BREAKS, LIKE HOMEOWNERS WHO DEDUCT THE INTEREST
PAYMENTS ON THEIR MORTGAGES?

I DON'T BELIEVE IT IS THE INTENTION OF THIS ADMINISTRATION TO DO
THE THINGS I'VE JUST MENTIONED. BUT THE POTENTIAL FOR MISCHIEF IS
THERE. SOME PEOPLE MAY THINK THAT THIS POTENTIAL IS SMALL, AND THAT
THESE QUESTIONS I'm POSING ARE EXTREME, BUT THE INSERTION IN THE APPRO-
priate places of a few simple words could extend this proposal to almost
every American citizen.

Even as the proposal is drafted, First Amendment liberties may not
be the only Constitutional rights which are threatened. As I have
discussed my concerns informally with some of my friends ~ people who,
if this proposal were law, would no longer be able to speak with me
unless they were prepared to forfeit their government contracts ~ i
have heard fears that the flfth amendment right to due process may also
be at risk. Suppose an individual holds a government contract to which
he devotes x percent of his time, and is therefore reimbursed for x
percent of his salary. the work is performed satisfactorily. while it
is under way, however, this person, during a time when he is working on
something other than his government contract, spends his own money to
come to Capitol Hill, so that he can speak with me about a public issue.
He has now violated the terms of his contract, so he loses the entire
salary reimbursement he had coming to him. the government has thus
taken his labors without providing him due process. sound reasonable?
Most certainly not. I would hate to be representing the government when

THE INDIVIDUAL BRINGS THIS CASE TO COURT.

Mr, Chairman, these Constitutional problems are not the only
difficulties i have with this proposal, i want to raise a couple of

OTHER CONCERNS/ AS WELL. It's ALWAYS FASHIONABLE TO DUMP ON LOBBYISTS.

as a social group, they are generally held in low esteem. but you and i
know very well from our years in the congress that lobbyists perform a
very valuable function by making us aware of the concerns of people who
are interested in the making of public policy, they provide ideas; they
help us evaluate thoughts of our own; they aid in drafting documents so
that those statements are technically correct and have as few unforeseen
consequences as possible; and they give us an impression of how dif-
ferent groups in society will view our work. they don't do this only
for the Congress, either; they provide all the same services for

AGENCIES AND OFFICIALS OF THE EXECUTIVE BRANCH. Th I S ADMINISTRATION
KNOWS THAT, TOO; TO CITE ONE WELL"KNOWN EXAMPLE, THE PRESIDENT HAS
CREATED THE GRACE COMMISSION, COMPOSED OF PRIVATE-SECTOR REPRESENTA-
TIVES, TO ADVISE ON HOW TO MANAGE FEDERAL PROGRAMS BETTER.

YOU AND I KNOW THAT PEOPLE WHO ADVISE US WILL OCCASIONALLY PROVIDE
INFORMATION THAT IS BIASED OR EVEN INCORRECT. BUT IF WE COULDN'T
EVALUATE THEIR ARGUMENTS AND DRAW OUR OWN CONCLUSIONS ON PUBLIC ISSUES,
WE WOULDN'T BE WORTH OUR SALT AS CONGRESSMEN. It's OUR JOB TO DISTILL
FROM THE OFTEN CONFLICTING ASSERTIONS OF PUBLIC DEBATE WHAT THE BEST
POLICIES ARE. BUT WE WOULD SURE HAVE A TOUGH TIME FIGURING OUT HOW TO
PROCEED IF THAT DEBATE WERE STILLED. LOBBYISTS AND OTHER CITIZENS WHO
PETITION THEIR GOVERNMENT OFFICIALS PROVIDE THE INFORMATION THAT
ENABLES US TO MAKE FAR MORE INFORMED AND INTELLIGENT DECISIONS.

I AM LASTLY DISTURBED, MR . CHAIRMAN, BY THE NAIVETE WHICH CHARAC-
TERIZES THIS PROPOSAL'S UNDERSTANDING OF THE RELATIONSHIP BETWEEN
BUSINESS AND GOVERNMENT. We HEAR THAT THERE SHOULD BE A "WALL OF
SEPARATION" BETWEEN COMMERCIAL AND POLITICAL ACTIVITY. BUT OUR ECONOMY

and our government operate in such a way that one cannot be separated
from the other. for business to function effectively in today's econ-
omy, it must participate in governmental decisions. tax and other laws
recognize that some political activity constitutes costs necessary to
the usual conduct of business. for government to function effectively,
it must depend on many and varied types of assistance from business.
This mutual dependence by itself makes creating a "wall of separation"
impossible.

The practical applications of creating a wall are perplexing, too.
Under the proposal, for example, marketing is a legitimate business
expense, but lobbying is sufficient grounds for disqualifying all
reimbursement for costs associated with a person who does it. What is
the practical difference between marketing and lobbying? Marketing is

A COMPLEX AND MULTI"FACETED ACTIVITY IN ANY AREA. It IS PARTICULARLY
COMPLICATED WHEN GOVERNMENT IS INVOLVED. MARKETING HERE INVOLVES
SPEAKING WITH A MYRIAD OF INDIVIDUALS IN VARIOUS AGENCIES AND TWO
SEPARATE BRANCHES OF GOVERNMENT. It FREQUENTLY REQUIRES INFLUENCING

policy-makers as well as contracting officers. the line between mar-
keting and lobbying cannot be drawn with any degree of correctness.
In summary, Mr. Chairman, this proposal is a classic example of

THE REMEDY BEING WORSE THAN THE PROBLEM IT IS SUPPOSED TO SOLVE — It's
LIKE BURNING YOUR HOUSE DOWN BECAUSE YOU DON'T LIKE THE COLOR OF THE
WALLPAPER.

I AM TRULY SORRY TO HAVE TO SPEAK IN SUCH HARSH TERMS ABOUT A
PROPOSAL ADVANCED BY THE ADMINISTRATION. RUT I WOULD NOT BE FULFILLING
MY DUTIES AS A MEMBER OF CONGRESS IF I DID NOT VOICE THESE OPINIONS.

I UNDERSTAND THAT THE ADMINISTRATION IS NOT YET PREPARED TO ISSUE
THESE PROPOSED REGULATIONS IN FINAL FORM. I AM HOPEFUL THAT IN TODAY'S
HEARING WE CAN EXPLORE WAYS TO ADDRESS THE ISSUES I HAVE RAISED AND AT
THE SAME TIME ADDRESS THE CONCERNS THAT HAVE PROMPTED THE ADMINISTRATION
TO ACT -" THE PROBLEM OF PRIVATE GROUPS INAPPROPRIATELY USING PUBLIC
MONIES TO LOBBY GOVERNMENT.

Mr. Brooks. Thank you very much, Mr. Horton.

The first witness this morning is Congressman Mel Levine from
California's 27th District. He was elected to the 98th Congress in
November, after 6 years in the California Assembly. He has a bach-
elor's from the University of California at Berkeley, a master's in
public administration from Princeton, and a law degree from Har-
vard. He serves on our Government Operations Subcommittees on
Environment, Energy, and Natural Resources, and on Manpower
and Housing. We welcome you as a witness today.

STATEMENT OF HON. MEL LEVINE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Levine. Thank you very much, Mr. Chairman.

I very much appreciate the opportunity to testify before your
subcommittee today.

In light of the excellent remarks made both by you, Mr. Chair-
man, and by your ranking minority colleague, I would like to have
the opportunity to summarize my testimony for you and seek
unanimous consent to revise and extend my remarks by submitting
the full testimony into the record.

Mr. Brooks. Without objection.

Mr. Levine. Thank you, Mr. Chairman.

Over the last few weeks, I have received a number of letters and
telephone calls from concerned business leaders in my district re-
garding the proposed OMB revision to existing guidelines on lobby-
ing and political advocacy known as Circular A-122.

I asked to be here today to relay some of that concern to you,
which has come from a cross-section of my district, and to other
members of your subcommittee.

I want to begin by saying that I agree with both the chairman
and Mr. Horton that the intent of the revision is appropriate and
that some reform of current guidelines is long overdue. In none of
my conversations with people who oppose the reforms currently
under consideration has anyone questioned the need to insure that
no one who receives Government grants be allowed to use that
money for partisan political purposes. Unfortunately, the revised
guidelines go beyond their stated goal and might very well signifi-
cantly impair the flow of information Members of Congress need to
properly represent their constituents.

I am concerned also that these regulations appear to go so far as
to significantly impair the first amendment rights of people cov-
ered by these regulations. Objections to the new guidelines that
have been provided to me by people throughout my district focus
on three areas. First the prohibition against "attempting to influ-
ence governmental decisions through an attempt to affect the opin-
ion of the general public or any segment thereof appears to be
quite unreasonably broad. It is so broad in fact that it could be con-
strued to cover conversations between individuals and elected offi-
cials. Does this mean that if I am touring an installation at which
contract employees are working on a Federal project and I ask an
employee for his opinion on the value of the project that that em-
ployee could find himself or herself in trouble for sharing his or
her opinions with me? Would an employee of a nonprofit organiza-

tion be prohibited from meeting with me to discuss the merits of a
project in which that organization was involved during regular
business hours? Would covered individuals be prohibited from writ-
ing something as insignificant as a letter to the editor clarifying an
issue discussed in that publication's editorial or news section?

In reading the OMB circular, Mr. Chairman, it appears that the
answers to those questions would all be yes. I believe that such pro-
hibitions are not only unfair, but violate free speech guarantees
contained in the first amendment to our Constitution.

Other specific provisions are equally disturbing. Subsection l.b.(4)
of the new paragraph would appear to be designed to prohibit cov-
ered individuals from taking part in lobbying both elected officials
and their staffs.

Subsection l.b.(6) prohibits giving anything of value, including
membership dues to any organization with political advocacy "as a
substantial organization purpose." The legitimate objections that
have been raised by so many people to these vague, overbroad, and
suspect provisions range from the implications for advocacy, mem-
bership, and simple provision of information.

Many times supporters and opponents of legislation or guidelines
can be an indication of how well crafted such guidelines are. And
as you indicated, Mr. Chairman, anything which manages to gener-
ate opposition from the chamber of commerce, the National Associ-
ation of Manufacturers, Common Cause and the Girl Scouts of
America clearly raises some very serious problems.

It is my belief that OMB would best be served by throwing away
A- 122 altogether and starting all over again to bring about some
meaningful reform in this area. After reading the circular, it is my
belief that it has so many problems that it would be much more
work to try and fix this circular than to begin anew and do it right
the first time.

Thank you again for allowing me to come before your subcom-
mittee to express these concerns.

Mr. Brooks. Thank you very much. We appreciate your testimo-
ny, Congressman.

[Mr. Levine's prepared statement follows:]

20-644 O— 83-

TESTIMONY OF CONGRESSMAN MEL LEVINE

BEFORE THE GOVERNMENT OPERATIONS
SUBCOMMITTE ON LEGISLATION AND NATIONAL SECURITY

Over the last few weeks I have received a number of letters and
telephone calls from concerned business leaders in my district regarding
the proposed OMB revision to existing guidelines on lobbying and political
advocacy, circular A-122. I asked to be here today to relay some of that
concern to you and to other Members of your subcommittee.

I want to begin by saying that I believe that the intent of the
revision is admirable and that some reform of current guidelines is long
overdue. In none of my conversations with people who oppose the reforms
currently under consideration has anyone questioned the need to ensure that
no one who receives government grants be allowed to use that money for
partisan political purposes. Unfortunately, the revised guidelines go
beyond their stated goal and might very well significantly impair the flow
of information Members of Congress need to properly represent their
constituents. I am concerned, also, that these regulations may go so far as
to significantly impair the First Amendment rights of people covered by
these regulations.

Objections to the new guidelines are focused on three areas:

(1) The prohibition against "attempting to influence governmental
decisions through an attempt to affect the opinion of the general public
or any segment thereof," seems unreasonably broad. It is so broad, in fact,
that it could be construed to cover conversations between individuals and
elected officials. Does this mean that if I am touring an installation at
which contract employees are working on a federal project and I ask an
employee for his opinion on the value of the project, that he could find

himself in trouble for sharing his opinion with me? Would an employee
of a non-profit organization be prohibited from meeting with me to discuss
the merits of a project in which that organization was involved during
regular business hours? Would covered individuals be prohibited from
writing something as insignificant as a letter to the editor clarifying
an issue discussed in that publication's editorial or news section?

In reading the 0MB circular, it appears that the answers to these
questions would be in the affirmative. I believe that such prohibitions
are not only unfair, but tread dangerously close to violating freedom of
speech guarantees contained in the Constitution.

(2) Secondly, subsection l.b.(4) of the new paragraph B33 would
appear to be designed to prohibit covered individuals from taking part in
lobbying both elected officials and their staffs. Once again, however, the
guidelines are written in such a general manner that all communication
between ejected officials, government employees and their staffs would be
prohibited. Frankly, it is very important that my staff and I have the
ability to communicate with knowledgeable individuals on subjects in which

I am, or may become, involved as a result of my Congressional responsibilities
Any prohibition on this will impair my abilities to properly represent the
needs of my constituents and will unfairly restrict their access to both
me and members of my staff.

(3) Finally, subsction l.b.(6)of the new paragraph B33 prohibits
giving anything of value, including membership dues, to an organization
with political advocacy "as a substantial organization purpose." Once
again, because of the vague way in which these guidelines have been drafted,
a worthwhile goal has been approached in a way which is so broad that in
addition to prohibiting misuse of government funds, individuals and
organizations would have their ability to participate in a broad cross-
section of important activities impaired. For example, would a Chamber

of Commerce which spends a significant amount of its time advocating a
particular point of view to either the public or elected officials be
defined as a political orgainizati on? If it is, would both individuals
and corporations which receive government grant funds be prohibited from
joining that Chamber of Commerce? It would appear to me that they almost
certainly would.

These objections merely scratch the surface of the complaints which
I have received about this matter. Many times supporters and opponents of
legislation or guidelines can be an indication of how well crafted such
guidelines are. Anything which manages to generate opposition from the
Chamber of Commerce, the National Association of Manufacturers, Common
Cause and the Girl Scouts of America clearly raises some very serious
problems. It is my belief that 0MB would best be served by throwing away
A-122 and starting all over again to bring about some meaningful reform
to this area. After reading the circular, it is my belief that it has so
many problems that it would be much more work to try and fix this circular
than to start all over again and do it right the first time.

Thank you again for allowing me to come before you and convey to you
my concerns.

Mr. Brooks. Our next witness this morning is Congressman Ed
Towns of New York's 11th District. He was elected to the 98th Con-
gress from the district which constitutes a large portion of Brook-
lyn. He is a social worker by profession and served for 5 years as
the deputy borough president for Brooklyn. On Government Oper-
ations, Congressman Towns serves on our Subcommittees on Gov-
ernment Information, Justice, and Agriculture, and on Intergov-
ernmental Relations and Human Resources.

Congressman, we are delighted to have you here. You may pro-
ceed.

STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK

Mr. Towns. I am delighted to be here, Mr. Chairman.

In light of what Congressman Horton has said, and in light of
your comments, Mr. Chairman, I will just summarize. I am happy
to know that A-122 is not going to be moved forward.

Mr. Brooks. Without objection, the statement of the gentleman
will be included in the record and you can proceed as you see fit.

Mr. Towns. A couple of comments. As legislators, we have a re-
sponsibility to insure that Congress retains the power to make law
and not the executive branch agencies. Regulations are no substi-
tute for legislation. OMB's new rules clearly move beyond
congressional intent in restricting the use of Federal grants by
nonprofit organizations. They also infringe on the constitutional
protection rights of freedom of speech. Such restrictions must be
actively opposed by Congress. Hopefully, today's hearings will serve
to expose these rules as bad public policy and will lead to their
withdrawal as it has already done.

I am thankful for this opportunity to present my views to the
committee and hope that we will make certain that rules such as
A-122 never move forward, because I think it is important to en-
courage people to participate in the governmental process.

Thank you very much, Mr. Chairman.

Mr. Brooks. Thank you very much.

Mr. Horton. Mr. Chairman, I would just like to welcome Con-
gressman Towns. Ed is a new member of the New York delegation
and we in that delegation are very happy that you are on this com-
mittee. It is the first time you have testified before the committee.
I have read your statement and I certainly agree with it.

Mr. Towns. Delighted to be working with you.

Mr. Brooks. Thank you very much.

[Mr. Towns' prepared statement follows:]

TESTIMONY
OF
THE HONORABLE ED TOWNS

MR. CHAIRMAN, I WISH TO COMMEND YOU FOR HOLDING THESE
HEARINGS ON 0M3 ' S PROPOSED AMENDMENTS TO ITS "COST PRINCIPLES
FOR NON-PROFIT ORGANIZATIONS", OMB CIRCULAR A-122. I BELIEVE
THAT THESE HEARINGS ARE CRITICAL TO MAINTAINING OUR "CHECKS
AND BALANCES" SYSTEM OF GOVERNMENT. THE "SO-CALLED MANDATE".
OF 1980 DID NOT GIVE THE ADMINISTRATION LICENSE TO BECOME A
MONARCHY, WITH NO ROLE FOR THE. LEGISLATIVE OR JUDICIAL BRANCHES
OF OUR GOVERNMENT. UNFORTUNATELY, THIS ADMINISTRATION, IN A
NUMBER OF AREAS, HAS BEHAVED AS IF EXECUTIVE BRANCH EDICTS
WERE OMNIPOTENT. OMB ' S AMENDMENTS, TO CIRCULAR A-122, ARE ONLY
THE LATEST EXAMPLE OF SUCH ABUSE.

MANY FEDERAL GRANTS AND CONTRACTS PROVIDE THAT THE
GOVERNMENT WILL REIMBURSE THE GRANTEE OR CONTRACTOR FOR EXPENSES
RELATED TO THE GRANT OR CONTRACT ACTIVITY. SINCE GRANTEES
USUALLY ENGAGE IN OTHER ACTIVITIES, NOT FUNDED BY A FEDERAL
GRANT OR CONTACT, THE TOTAL COST OF THE GRANTEE'S OPERATIONS MUST
BE ALLOCATED BETWEEN THE GRANT ACTIVITY AND THE OTHER ACTIVITIES
OF THE GRANTEE. OMB HAS A LEGITIMATE ROLE IN ESTABLISHING
UNIFORM GUIDELINES FOR MAKING THIS "COST ALLOCATION" TO NON-PROFIT
GRANTEES. THE PROPOSED CHANGES TO THE CURRENT GUIDELINES, HOWEVER,
GO FAR BEYOND OMB'S APPROPRIATE ROLE IN DETERMINING COST ALLOCATIONS.
IN FACT, OMB'S NEW GUIDELINES ARE MORE RESTRICTIVE THAN CONGRESS'
OWN LEGISLATIVE MANDATES AND STATUTES.

UNDER THE PROPOSED AMENDMENTS, ALL GRANTS TO NON-PROFIT
ORGANIZATIONS WOULD BE SUBJECT TO RESTRICTIONS ON PARTICIPATION
IN THE GOVERNMENTAL DECISION-MAKING PROCESS. CURRENTLY, SUCH
RESTRICTIONS APPLY ONLY WHERE EXPLICITLY IMPOSED BY CONGRESS. NOT
ONLY WOULD THESE AMENDMENTS DENY REIMBURSEMENT FOR THE COSTS OF

"POLITICAL ADVOCACY" BUT THE DEFINITION OF "POLITICAL ADVOCACY"

HAS BEEN EXPANDED SIGNIFICANTLY. INFLUENCING GOVERNMENTAL

DECISIONS THROUGH COMMENTS ON REGULATIONS, AMICUS BRIEFS,
PUBLIC INTEREST LITIGATION OR ANY COMMUNICATION DESIGNED TO

INFLUENCE A GOVERNMENT EMPLOYEE IN MAKING OR ADMINISTERING
PUBLIC POLICY IS PROHIBITED BY THE PROPOSED OMB REGULATIONS.
THESE RESTRICTIONS ARE GREATER THAN THOSE IMPOSED ON CHARITABLE
501(c) 3 ORGANIZATIONS BY THE INTERNAL REVENUE CODE OR THE
RESTRICTIONS CONGRESS HAS ATTACHED TO THE DEPARTMENT OF HEALTH
AND HUMAN SERVICES' APPROPRIATIONS BILL. PERHAPS THE MOST
ONEROUS CHANGE, IN THE COST ALLOCATION RULES, INVOLVES A
RESTRICTION ON NON-FEDERALLY FUNDED ACTIVITIES. CURRENT LIMITA-
TIONS ON LOBBYING EFFORTS GENERALLY APPLY ONLY TO ACTIVITIES
DIRECTLY SUPPORTED BY GRANT FUNDS. OMB WOULD CHANGE THESE
RESTRICTIONS TO INCLUDE NON-FEDERAL FUNDS. FOR EXAMPLE, IF AN
EMPLOYEE'S SALARY WAS SUPPORTED ENTIRELY BY FEDERAL FUNDS AND
HE OR SHE SPENT AS LITTLE AS 10 PERCENT OF HIS OR HER TIME
ON "POLITICAL ADVOCACY", THE NEW RULES WOULD PROHIBIT REIMBURSE-
MENT OF ANY PART OF THE EMPLOYEE'S SALARY — NOT JUST THE 10 PERCENT.
EVEN WHERE THE EMPLOYEE'S SALARY IS PAID PARTIALLY WITH NON-FEDERAL
FUNDS, IF THE EMPLOYEE SPENDS ANY TIME ON "POLITICAL ADVOCACY",
NO PART OF HIS OR HER SALARY CAN BE REIMBURSED UNDER THE FEDERAL
GRANT.

IN THESE PROPOSED RULE CHANGES, OMB HAS EXCEEDED ITS "POWER
TO ADOPT REGULATIONS TO CARRY INTO EFFET THE WILL OF CONGRESS AS
EXPRESSED BY STATUE". IN GENERAL, NO LEGISLATION RESTRICTS THE
RIGHT OF NON-PROFIT ORGANIZATIONS RECEIVING FEDERAL GRANTS OR
CONTRACTS TO LOBBY OR OTHERWISE PARTICIPATE IN THE GOVERNMENTAL
DECISION-MAKING PROCESS. IN FACT, WHERE CONGRESS HAS SUPPORTED
CERTAIN RESTRICTIONS ON LOBBYING, THEY HAVE NEVER BEEN AS
SEVERE AS THOSE PROPOSED BY OMB, FOR EXAMPLE, THE HEAD • START
ACT, WHILE PROHIBITIING VOTER REGISTRATION AND OTHER POLITICAL
ACTIVITIES, SPECIFICALLY LIMITS THIS PROHIBITION ONLY TO "THAT
PORTION OF THEIR EMPLOYEES TIME FOR WHICH THEY RECEIVE COMPEN-
SATION PROVIDED DIRECTLY OR INDIRECTLY UNDER THE AUTHORITY OF
THE ACT" .

IN ADDITION, THE PROPOSED RULE, DENYING GRANTEES REIMBURSEMENT
FOR THE COST OF ENTIRELY PROPER, NON-POLITICAL GRANT ACTIVITIES
IF THEY EXERCISE THEIR FIRST AMENDMENT RIGHT OF EXPRESSION, RAISES
STRONG CONSTITUTIONAL QUESTIONS. LIMITING "FREEDOM OF SPEECH",
BY THE THREAT OF A LOSS OF GOVERNMENT GRANTS OR CONTRACTS, SERVES
NO COMPELLING GOVERNMENT INTEREST, EXCEPT TO ELIMINATE CRITICISM.
GOVERNMENT-LED EFFORTS TO STIFLE CRITICISM HAVE NO PLACE IN A
DEMOCRATIC SOCIETY. NO ONE DENIES THAT LIBERAL, NON-PROFIT GROUPS
WILL BEAR THE BRUNT OF THESE NEW RULES. MOST CERTAINLY, THE
ADMINISTRATION IS AWARE OF THIS REALITY AND IN FACT, "DEFUNDING
THE LEFT" IS PROBABLY ONE OF THE MAJOR POLITICAL RATIONALES BEHIND
THESE PROPOSED RULE CHANGES. GROUPS, UNWILLING TO FORFEIT
THEIR FIRST AMENDMENT RIGHTS, WILL CEASE TO PARTICIPATE IN
FEDERALLY-FUNDED PROGRAMS AND IT WILL NOT BE "THE LEFT" OR LIBERAL
GROUPS WHO ARE THE REAL LOSERS BUT THE MILLIONS OF AMERICANS WHO
ARE SERVED BY THESE PROGRAMS. THOUSANDS OF GOVERNMENT PROGRAMS
AND SERVICES ARE NOW ADMINISTERED THROUGH NON-PROFIT ORGANIZATIONS.
SHELTERED WORKSHOPS, JOB TRAINING PROGRAMS, HOME-CARE SERVICES
FOR THE ELDERLY AND MANY OTHER ACTIVITIES COULD NOT FUNCTION WITHOUT
THE INVOLVEMENT OF NON-PROFIT ORGANIZATIONS.

AS LEGISLATORS, WE HAVE A RESPONSIBILITY TO ENSURE THAT

CONGRESS RETAINS "THE POWER TO MAKE LAW" AND NOT THE

EXECUTIVE BRANCH AGENCIES. REGULATIONS ARE NO SUBSTITUTE
FOR LEGISLATION. OMB ' S NEW RULES CLEARLY MOVE BEYOND
CONGRESSIONAL INTENT IN RESTRICTING THE USE OF FEDERAL GRANTS
BY NON-PROFIT ORGANIZATIONS. THEY ALSO INFRINGE ON CONSTITU-
TIONALLY-PROTECTED RIGHTS OF "FREEDOM OF SPEECH". SUCH
RESTRICTIONS MUST BE ACTIVELY OPPOSED BY CONGRESS. HOPEFULLY,
TODAY'S HEARING WILL SERVE TO EXPOSE THESE RULES AS BAD PUBLIC
POLICY AND WILL LEAD TO THEIR WITHDRAWAL.

I AM THANKFUL FOR THIS OPPORTUNITY TO PRESENT MY VIEWS
TO THE COMMITTEE ON THIS IMPORTANT MATTER.

Mr. Brooks. Our next witness this morning is Congresswoman
Pat Schroeder from Colorado's 1st District. She was elected to the
93d Congress in 1972, and in the past 10 years she has compiled a
distinguished record both in her service on the Armed Services
Committee and on the Post Office and Civil Service Committee
where she is chairwoman of the Subcommittee on Civil Service.

She is a Phi Beta Kappa graduate of the University of Minnesota
and has a law degree from Harvard University.

Pat, we look forward to hearing you this morning.

STATEMENT OF HON. PATRICIA SCHROEDER, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF COLORADO

Mrs. Schroeder. Thank you very much, Mr. Chairman. I too
would like to ask unanimous consent to put my statement in the
record and just summarize.

Mr. Brooks. Without objection.

Mrs. Schroeder. I want to say that I can't salute the chairman
enough for having the tenacity to move forward and protect free
speech and the right to petition. I think that is what they forgot
when they drafted this regulation. The chairman has always been
very, very good about not being bulldozed by anybody. I thank you
for moving forward and making sure this is aired, rather than de-
ciding that we could just put it away and hope the next regulation
won't be so oppressive.

What is so disconcerting to me about all of this is that if you look
at this and put it together with the regulations about the Com-
bined Federal Campaign that came out at the same time, they
really have gone way, way too far. Other people have said that but
let us talk about how in the world could you hold yourself out as a
group trying to serve Vietnam veterans, for example, if you can't
testify on disability coverage for agent orange. You couldn't.

How could you possibly be out working to shelter the homeless,
going out to get funds for the shelters and not be allowed to come
down here and tell Members of Congress what will happen if they
shut off the funds for the shelters. They will be right back with the
homeless, back on the street. You can't do that.

If these groups are out really trying to serve segments of our so-
ciety whether they are Native Americans, or blind people, or Viet-
nam veterans, or the homeless, what have you, they have a duty to
be an advocate. And being an advocate is not necessarily being a
lobbyist. I think we have to go way back to the drawing board and
start all over again. The way I read this regulation if one phone
call was made on an organization's telephone, it wouldn't be al-
lowed to pay for any part of that phone bill with any kind of Gov-
ernment money. If one letter was written by one staff member, no
money could go to that staff person's salary. As I said drawing the
line between legitimate advocacy and lobbying is very difficult. I do
not believe it can be done. I do believe what you are doing here is
really making a political statement. If you are saying you are only
going to honor the organizations that won't attack anything the
Government does, what you said is you really want a bunch of lap
dogs. These organizations were out there to be advocates to protect
their people, not to protect the Government.

So what you are doing is forcing these advocacy agencies to
become protectors of the Government. They are not supposed to
tell us what they are doing. They are not supposed to tell them
how we flub up.

So I think that's what really this regulation is saying. It is a si-
lencing of criticism. It is very critical under the first amendment.

If I look at these regulations and also look at the Combined Fed-
eral Campaign regulations and also look at legislation we will be
taking up this week, some very interesting things happen. As you
know in the appropriations bill this week, we will be putting $50
million out for the homeless. We will be giving it to private organi-
zations to try and channel it out for the homeless because we fig-
ured that they knew how to do it best.

Now, I think, the way I read the CFC regulations and the way I
read OMB A-122 circular, those organizations will never be al-
lowed to participate in the Combined Federal Campaign or get Gov-
ernment grants again because the United Way and the Red Cross
and so forth came here, talked to Members of Congress, said we are
in the business of providing this kind of shelter, we know what to
do; Members of Congress said terrific, we will give the money di-
rectly to you. I think that would be considered lobbying and advo-
cacy under the CFC rules or Circular A-122.

So next year they may find themselves not in the Combined Fed-
eral Campaign and if they are operating under A-122, which we
now hear is going to be pulled, they will be in great trouble there.

So this really goes way too far. I don't think we can go around
and just prefer advocates that don't advocate, and that is really
what we are saying if this thing goes through. I really salute the
chairman and this committee for bringing it to the attention of the
Office of Management and Budget that once again their vendetta
may have gone much too far, that no one has any problem with
real reform, but it can't go that far out of line and I really compli-
ment you for getting right to it.

Mr. Brooks. I want to thank you very much, Mrs. Schroeder.
You are very gracious to come down and we appreciate your help.

[Mrs. Schroeder's prepared statement follows:]

STATEMENT OF REP. PATRICIA SCHROEDER
Before the Subcommittee on Legislation
and National Security, Committee on
Government Operations on

Chairman Brooks and members of the Subcommittee,

I am grateful for the opportunity to testify today about the Administration's
manifest intolerance of political opposition and its recent efforts to surpress'it.
Chairman Brooks is to be commended for holding these hearings. I trust that his
efforts to curb the excesses of political regulation proposed by this Administration
will not end with today's session.

These hearings are primarily about a proposed revision of the Office of
Management and Budget (OMB) Circular A-122, "Cost Principles for Nonprofit
Organizations," to prohibit any government money from going to political advocacy.
The revision of Circular A-122 brings with it revisions of Defense Department,
National Aeronautics and Space Administration, and General Services Administration
regulations dealing with procurement. These OMB regulatory changes come hand in
hand with President Reagan's February 10, 1983, revision of the Executive order
dealing with the Combined Federal Campaign. Taken altogether, these changes
represent a concerted effort to defund anyone who is likely to disagree with the
Administration. This attitude is summed up by a story I heard concerning the
chief OMB drafter of the Circular A-122 revisions. He was asked about a large
nonprofit organization which provides by contract, a substantial amount of high
quality job training for the Federal government. The OMB official repudiatedly
said, "They're great when they provide job training, but why do they have to go
to the Hill to lobby against our budget cuts?"

The problem with the Circular A-122 revisions lies not in its basic policy,
i.e., that government money should not go to subsidize political advocacy. This
policy statement merely begs the questions. Obviously, tax dollars should not go
to support directly the lobbying efforts of the Heritage Foundation or Americans
for Democratic Action. Does this mean that contributions to these organizations

should not be tax deductible? The challenge j 9 translating this principle inv
workable regulations governing the awarding of grants and contracts. The OMB
proposal of January 24, 1983, makes no reasoned effort to balance First Amendment
protection of citizens organizing to petition their government with the prohibition
on government directly subsidizing advocacy. Rather, this proposal is extreme,
unworkable and punitive. And, it is structured in a way guaranteed to hurt liberal
organizations more than conservative ones, small businesses more than big businesses,
and poor organizations more than rich ones. Others will go into the discriminatory
effect of the regulations in greater detail. Suffice it to say that, while these
regulations will impose new, high, and inflationary costs on everyone who does
business with the government, it will not put General Dynamics or United Way out
of business. It may very well price health, educational, and welfare organizations,
as well as small businesses, out of the market. If one lobbying phone call is made
on an organization's telephone, the regulations would prohibit the use of any govern-
ment grant money to pay for any part of that phone bill. Where a staff member
writes one letter to the local member of Congress, no portion of that staff member's
salary can be supported by grant or contract funds. This is not sound contract
management, as claimed by OMB; rather, this is political witchhunting.

The other piece of this attempt to defund political enemies comes in a new
Executive order limiting participation in the Combined Federal Campaign (CFC) so
that "agencies that seek to influe-'ie the outcome of elections or the determination
of public policy through political activity or advocacy, lobbying or litigation on
behalf of parties other than themselves shall not be eligible to participate in the
Combined Federal Campaign." This statement is so broadly written that there is
doubt whether traditional CFC recipients, such as United Way and American Cancer
Society, can continue to participate. I do not know how the Office of Personnel
Management can write regulations around this statement which will allow these
organizations to participate. In announcing the new order, however, the Office
of Personnel Management (0PM) said it was intended that "advocacy groups that

have been admitted to the CFC in recent years will be excluded from the campaign."

What I don't understand is how an organization dedicated to serving the needs ~"
of any group in need of special governmental assistance, say Vietnam veterans or
blind people, or American Indians, or the homeless can do its job without becoming
involved in legislative affairs. It strikes me as naive to say a group trying
to help Vietnam veterans can provide direct counseling but cannot lobby for dis-
ability benefits for the victims of Agent Orange. It is silly to say that the
Community for Creative Non-violence can get money to shelter the homeless in
Washington only so long as they do not lobby against budget cuts which will close
shelters. The Appropriations bill, providing money for jobs, which we will vote
on this weeX contains a section which provides $50 million for food distribution
and emergency shelters distributed by a board consisting, in part, of six non-
profit organizations, including United Way of America, the Salvation Army, and
the American Red Cross. Did this money for essential assistance to the homeless
and hungry get in the bill by magic, or did the organizations which know the need
the best convince members of the Appropriations Committee that there was a job to
be done and they could do it? The latter is the case. Groups, like United Way,
worked with the Congress to appropriate needed money. Yet, these organizations
now may become ineligible for inclusion in the Combined Federal Campaign because
they advocated appropriations for the homeless and hungry. Indeed, Circular A-122
could be construed to apply to the $50 million contained in this legislation. If
so, the groups' involvement in drafting the bill could render them ineligible to
receive the money.

The First Amendment to the Constitution protects the right of citizens to
organize and to petition the government for a redress of grievances. This
Administration seems to view the First Amendment in the narrowest possible way:
that the government can and should do whatever it can to stiffle political discourse
through withdrawing money from unquestionably non-political activities if the
recipient spends any other money to engage in First Amendment protected activities.

So long as the government does not make it criminal to petition the government,
the Reagan Administration believes that it is fine to withhold benefits from those
who exercise this right. My own view of the First Amendment and the policy under-
lying it is that government should encourage and facilitate robust public discourse
and sharp political debate. So long as the government does not prefer one advocate
over another in terms of granting contracts or grants or in permitting them to
participate in the Combined Federal Campaign, I see no reason to exclude advocacy
groups from these programs. Rather, I believe the First Amendemnt tells us to
allow such groups to participate. Indeed, looked at in another way, by only
permitting the participation of non-advocacy groups, the government is, in fact,
favoring one political position over another. It is favoring those who do not .
see fit to criticize the current Administration; it is favoring those who want to
do what the Administration wants to do, i.e., preserve the status quo. This aspect
is particularly troubling.

I urge this committee to tell the Office of Management and Budget to stop
its political vendetta against those who oppose the policies of this Administration.
Democracy cannot long tolerate a campaign of political vengence, especially when
it comes at the expense of the First Amendment.

Mr. Brooks. Jim, do you want to make a statement right now?
Come on and do that. We are delighted to hear at this time from
Congressman Jim Moody, a distinguished new Member of Congress,
interested in consumer affairs and dedicated to better government.
We will be pleased to enter your prepared statement in the record.

STATEMENT OF HON. JIM MOODY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WISCONSIN

Mr. Moody. Thank you, Mr. Chairman. Let me make this brief.
A number of nonprofit organizations in Wisconsin met this week-
end to express strong opposition to these proposed regulations. I
want to make just two points.

First, I think these regulations are clearly a violation of the
spirit with which this administration came into office. Namely,
that we would rely on the nonprofit and voluntary organizations to
provide the vitality to fill the void left by the administration's atti-
tude that the private sector, and not the Government, should per-
form certain functions. It is therefore inappropriate that we now
see this administration attempting to stifle that sector which is so
important indeed. It is probably also unconstitutional under most
interpretations.

My second point is that it is dysfunctional. It is dysfunctional to
ask agencies that are out in front of the firing line helping to solve
social problems to not communicate back to the Government what
the problems are with current policies. After all, effective control
of any organization or any activity requires a two-way communica-
tion. If you do not let the implementing organizations tell the Gov-
ernment what is wrong with a policy and how it should be
changed, the corrective changes that are needed will not be made.
It would be like setting a plane for a distant flight on automatic
pilot and not allowing any adjustment in the navigational direc-
tions. So the regulations are not only in violation of the spirit of
the voluntary approach to government that this administration
touted, they are also dysfunctional and very counterproductive.

Thank you, Mr. Chairman.

Mr. Brooks. Thank you very much, Congressman. We are de-
lighted to have had you here.

[Mr. Moody's prepared statement follows:]

Congressman Jim Moody

Testimony before the

SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY

Committee on Government Operations

March 1, 1983

Mr. Chairman, members of the Subcommittee, I want to
express my strong opposition to the Office of Management and
Budget Circular A-122, the proposed amendments to its "Cost
Principles for Nonprofit Organizations".

This proposal would so restrict the use of Federal funds
for "political advocacy" or lobbying that nonprofit groups
would be virtually prohibited from making any governmental
contact whatsoever. Those affected include not only a large
number of nonprofit organizations in my district, but a
broad spectrum of groups from every part of the country, from
Boeing aircraft to Planned Parenthood.

Under Circular A-122, the definition of "political advocacy"
has been stretched to the point of being overly broad and

vague thus raising serious constitutional questions. In

fact under OMB ' s definition it is nearly impossible to
distinguish true service work from advocacy. Since many of the
activities undertaken by nonprofit groups require some
communication with public officials, this definition only
distorts those activities to the point of discouraging precisely
what Congress originally intended to encourage.

The Reagan Administration has so broadly defined "political
advocacy" that many organizations would forego all politically-
related efforts rather than risk loss of federal monies.
The definition embraces nearly any statement or action by
any federal contractor or grantee that would have any effect
on any political body. Even if groups are funded for the
most part by private contributions, the fear of losing federal
funds would have a "chilling effect" on speech, actions,
publications and other contacts. If only 5% of an employees
time is spent on "advocacy", none of that employee's salary
may be paid with federal funds. This is true even if these
activities are necessary related to the purpose of the federal
contract or grant. Finally, this definition places the

burden on the recipient of the funds to show that no "political
advocacy" has taken place.

I am particularly concerned that the Circular will be
fatal to smaller voluntary groups which depend upon federal
grants or contracts for their very existence. Under the
proposed OMB regulations these groups would need to hire a
separate staff and conduct even remotely related activities
from separate facilities — a situation which would be expensive
and impractical at best, and in some cases, totally impossible.

In addition, this regulation creates an administrative
nightmare for those who would have to enforce its sanctions.
I know of no effective organization whose chief executive
could or would disqualify him or herself from either the
direct service side or the advocacy side. All channels of
communications would have to be drastically altered. Can
you imagine the head of either the Ford Motor Company or the
Ford Foundation completely divorcing himself from any advocacy
activity with government?

This regulation would in fact be dysfunctional. The
free flow of information from implementing agency to government
is vital if there are going to be necessary corrections and
adjustments in programs. This feedback device and two-way
information flow is an important and productive part of govern-
ment purposes being carried out by non-government agencies, but
Circular A-122 would make it become a tainted, almost immoral
activity. To deny two-way communication would be like setting
a plane on automatic pilot and not checking and rechecking
during the flight to make sure the plane is still on course.

In conclusion, Mr. Chairman, I would like to say that
the negative reaction in my district to this proposal has
been strong and across the board. I have joined with a
bipartisan group of my colleagues in sending a letter to the
President expressing our concerns. Large and small groups
representing every type of constituency, recognize the counter-
productive nature of Circular A-122. Not only would the
people who the nonprofit groups serve be sorely hurt but our
government's ability to reshape and correct programs would
be reduced.

For these reasons I am opposed to OMB's proposal and urge
this subcommittee to send a strong and clear message to the
White House and to the OMB.

20-644 0—83 3

Mr. Brooks. Our next witness was supposed to have been Mr.
David Stockman, Director of Office of Management and Budget. On
February 16 I wrote a letter inviting him to appear before the sub-
committee this morning to defend the OMB's proposal on cost prin-
ciples for nonprofit organizations.

Apparently he preferred not to appear before this subcommittee
and assumed that in his place he could send the Deputy Director of
OMB Joe Wright, who is neither responsible for overall operation
of the agency nor the author of this proposal. In several discussions
last week between the committee staff and OMB officials, it was
emphasized that the request was for Mr. Stockman to come down
briefly and discuss the matter. But the determination of whose tes-
timony is needed for us to carry on oversight and legislative re-
sponsibilities is ours to make, not the administration's. And OMB
cannot simply assume that they can determine who they want to
send.

Last night Joe Wright reached me at home and requested that
he be substituted as the OMB witness. He was in California, flew
in on the midnight express and he looks pretty good, considering
that. He assured me that he is the person at OMB responsible for
this area, and he can speak with the full authority of the agency.
Apparently Mr. Stockman takes little interest in the management
side of OMB, but concentrates his energies on the budget side.
While I personally feel that the head of any agency should be fully
responsible for all activities of the agency, I have agreed to have
Mr. Wright testify. I told him last night to come on in as we would
be delighted to have him.

But I just want the OMB to understand that we may call Mr.
Stockman back sometime and when we do, we would hope that he
could be here.

I would like to introduce Mr. Wright at this time. He was Deputy
Secretary of Commerce, Assistant Secretary for Administration of
the Department of Agriculture and Acting Assistant Secretary for
Economic Affairs at the Department of Commerce. He has also
held responsible positions in private industry in the area of man-
agement consulting and credit card retail marketing. He is accom-
panied by Bob Bedell, Deputy General Counsel of OMB. Did Mr.
Michael Horowitz, the OMB Special Counsel, come down with you,
Mr. Wright?

Mr. Wright. No, sir, Mr. Chairman, he is not with us this morn-
ing.

Mr. Brooks. The gentleman is recognized.

STATEMENT OF JOSEPH R. WRIGHT, JR., DEPUTY DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET, ACCOMPANIED BY
BOB BEDELL, DEPUTY GENERAL COUNSEL

Mr. Wright. Mr. Chairman, it sure is good to see you again.

Mr. Brooks. Always a pleasure to have you, Joe.

Mr. Wright. There is one advantage of taking the redeye from
California and that is you get kind of numb when you come on in.

I sincerely am delighted to be here, because I think the process
that we have gone through, like Congressman Horton said, on this
issuance of changes to A-122, has been the tough way. We will be

issuing new draft regulations in a couple of weeks, going through
the process all over again. But this did get us into a hearing before
this distinguished group and my guess is that you are going to see
some very honest opinions that are going to be stated by both sides
of the aisle, both the business community, from the procurement as
well as the nonprofits. And, Mr. Chairman, we feel like this is
probably going to be very useful and we would like to concentrate
on the need for some revisions to A- 122 and do it in a very con-
structive manner.

I would like to submit my testimony for the record, if I may

Mr. Brooks. Without objection.

Mr. Wright. Thank you. In there I include some of the Comp-
troller General's opinions on the subject, also the press release that
we came up with last Friday stating our intent to go ahead and
issue new draft regulations and delay the time for what will be in
effect another 60 days from approximately right now.

The purpose of the proposed amendment to the OMB Circular A-
122 is to make it clear that no appropriated funds are spent direct-
ly or indirectly to support lobbying or related activities. So far
from both yourself, Mr. Chairman, Mr. Horton and the earlier wit-
nesses, I have not heard a disagreement with that basic intent. So
at least we are starting in the same direction.

I do agree that the first revisions went too far and there are
some changes that are going to have to be made. The question that
comes up continually is, why are these changes needed? Mr. Chair-
man, this is not an unusual precedent that we are setting in OMB
in trying to better define cost principles. This is a third issuance of
an OMB circular on trying to better define cost principles for Gov-
ernment agencies and cost principles apply whether they be pro-
curement institutions, nonprofits and so forth.

The first one was Circular A-21, which came up in the late
1950's, which established the cost principles for educational institu-
tions. The second one in the late 1960's was A-87, which estab-
lished cost principles for State and local governments. Circular A-
122 which came out in 1980 under the prior administration estab-
lished the cost principles for nonprofit organizations.

Now, the problem that we found ourselves in is that the current
rules are not necessarily clear, they are not uniform, and they are
neither enforceable nor a deterrent toward using appropriated
funds for lobbying. We believe that many of the decisions of the
Comptroller General support our reading of the current law, and
our assessment of some of the current problems. We are convinced
that an effort to prohibit taxpayers' funds from being used to pay
the costs of lobbyists is a worthwhile effort.

Now, the way to get that done should be really what we are
working on today. So we are not coming out with a new A-122 that
can be withdrawn like you suggested. That would be wrong because
A-122 basically consists of definitions of cost principles that apply
across a wide range of categories. What we are focusing on is the
changes that would be made to put in better definitions of those
costs that are used improperly for lobbying. And that is all. Not
the rest of A-122.

The proposal that we came out with does two things. It clearly
states that the costs of political advocacy are not allowed to be

charged to Government contracts or grants, either directly or indi-
rectly. Now, on that one we haven't seen a lot of disagreement.

The second part would preclude the use of Federal funds for the
payment of costs of items such as salaries or facilities also used for
political advocacy, and that, right there, is where the firestorm
started.

The comments we have received so far, that we will receive
during this hearing and I am sure during the next few weeks, indi-
cate that we must revise our approach on this second point. Fur-
thermore, we must restrict the definition of political advocacy basi-
cally to grassroots lobbying and efforts to influence the Congress
only.

Because of the extent of these changes, we have decided, like I
mentioned, to revise this proposal. We will come out with it in sev-
eral weeks. We will permit another 45 days for public comment.
The final revisions will probably be coming out in 4 or 5 months,
sometime during the summer. We do not affect — or these changes
will not affect any programs that are funded this year, and that is
an important point.

And beyond that, Mr. Chairman, I would say that I would be
more than happy to answer any questions, take any suggestions
you have and we would like very much to work with this commit-
tee in coming up with those revisions which are appropriate to the
entire cost definition package of A-122, to fit what I perceive is the
common goal as you established in the beginning — and that is to
insure that improper lobbying does not occur with Federal funds.

[Mr. Wright's prepared statement follows:]

•' ■■©•• V EXECUTIVE OFFICE OF THE PRESIDENT

l*3~S}* OFFICE OF MANAGEMENT AND BUDGET

'■ .^P»* ..? WASHINGTON, D.C. 20SO3

TESTIMONY OF JOSEPH R. WRIGHT, JR.
DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS

MARCH 1, 1983

Mr. Chairman and Members of the Committee: Thank you for
the opportunity to appear today to explain the purpose of our
proposed revisions in Circular A-122 and to*hear your comments
and questions. This is an area of great complexity and
sensitivity, and I would like to assure the Committee at the
outset that we are by no means committed to the precise terms of
the published proposal. Our Federal Register notice of January
24 was just that: a solicitation of comments. As I will
explain further in a moment, already we have identified a number
of areas in which significant revisions in the proposal will
need to be made, and intend to publish revisions in the
proposals for further comment within the next two weeks.

Nonetheless, I would like to emphasize the Administration's
belief that the use of federal funds for political advocacy
purposes should be curbed. Not only is it a misuse of the

taxpayers' money — particularly in these days of fiscal
stringency — but government subsidy of the political advocacy
activities of particular private companies or organizations can
distort the political process. It is unfair for contractors or
grantees to use taxpayers' money to support causes that the
taxpayers may not agree with. This Administration is committed,
as Director Stockman's memo of April 26, 1982 confirms, to the
priciple that grants and contracts should be awarded to those
parties which are most effective in fulfilling statutory
purposes, regardless of the extent or nature of their political
advocacy. This does not mean, however, that we should pay for
this advocacy.

The diversion of taxpayers' money to private political purposes
is not a new problem to us, and it is not a new problem to
Congress. The General Accounting Office uncovered grantee
violations as long ago as 1948. Over the past ten years, some
40 to 50 riders have been attached to appropriations bills to
address some parts of the problem. After a recent investigation
into political advocacy activities by grantees under Title X of
the Public Health Service Act, the Comptroller General issued
the foliowinq recommendation:

Clear federal guidance is needed both to
ensure that Title X program funds are not used
for lobbying and to preclude unnecessary
controvery over whether grantees are violating
federal restriction. The move to revise and
make more specific the cost principles
applicable to all federal grantees is the
appropriate mechansim to achieve these ends.

This investigation and recommendation show the need for
improvements in the treatment of political advocacy costs in the
current A-122 cost principles, since they have been in effect
since 1980 and applied to the grantees under investigation. Our
proposals are intended to achieve these ends — to protect the
taxpayer, to enforce restrictions passed by Congress, and to
provide a consistent and comprehensive approach to treatment of
costs associated with political advocacy by grantees and
contractors. As the intensity of reaction by affected groups to
our notice has shown, our task is not an easy one. But with the
help of comments from the public, from this Committee, and from
interested parties, we believe we can make a significant, fair,
and workable step toward our commonly-accepted objective of
ensuring that the expenditure of federal funds through grants
and contracts does not result in an improper advantage to one or
another participant in the political marketplace of ideas.

Allow me to review the current state of laws and procedures
for the control of funds going to political advocacy. There are
two generallly applicable federal laws covering lobbying with
appropriated funds: one criminal — Section 1913 of Title 18 of
the united States Code, one a restriction on use of
appropriations — currently Section 607(a) of the Treasury,
Postal Service, and General Government Appropriations Act, as
incorporated in the continuing resolution. In addition,
Congress has enacted lobbying restrictions applicable to
specific agencies, especially those with a history of problems
in this area. Nonetheless, abuses of the system have been

frequent and disturbing.

o In its investigation of family planning grantees
order Title X of the Public Health Service Act last
fall, the General Accounting Office audited seven
representative grantees and found that all seven
had incurred questionable expenses in connection
with political advocacy. Federal funds were used
for dues to lobbying organizations, for direct
lobbying at the federal and state levels, for
organizing writing campaigns to Congress, and for
other political activities. Perhaps most alarming
is that accounting systems under current procedures
are so confused that GAO could not determine in two
cases whether the organizations' lobbying involved
federal funds or not.

o On the defense side, in a recent investigation
of Lockheed's lobbying campaign on the proposed $10
billion procurement of the C-5A aircraft GAO found
that nearly half a million dollars in lobbying
costs were included in the company's overhead
expenses — 54% of which would be picked up by the
federal taxpayers. Moreover because of the
commingling of improper lobbying activities with
legitimate "contract work and the inability of the
current system to enforce rigorous distinctions,
GAO was unable to determine the amount of employee
time improperly used.

o The same investigation revealed that Boeing,
lobbying on the other side of the issue, also
incurred political advocacy expenses which it
sought to charge input to the government through
overhead accounts.

o In audits released to Common Cause by the
Defense Department under the Freedom of Information
Act concerning the political activities of ten
defense contractors in 1974-75, auditors had
discovered over $2 million in questionable expenses
charged to the government related to lobbying,
including the cost of goose hunting trios in
Maryland, a film praising the B-l bomber, and
decorations for a "Sky Suite" at the Capital Center
Sports Arena.

o In 1980, the Food Research and Action Center, a
Community Services Administration grantee, used
federal funds for generating a public campaign
against the Department of Agriculture's pilot
"workfare" program, including a call to "monitor
and hassle" workfare projects and to campaign at
the state and county levels to block applications
to be part of the pilot project.

o In 1981, the American Health Planning
Association solicited federally funded health
systems agencies for increased contributions for a
lobbying campaign. At least 14 of the agencies
responded with federal funds.

o This is only the tip of the iceberg — only a
few of the instances in which a Member of Congress
or the public caught wind of a possible violation,
and it could be documented. I can provide this
Committee with numerous instances of apparent
questionable practices — cases in which recipients
of federal grant or contract money engaged in
political advocacy activities and may well have
employed federal funds. Sources as diverse as
Common Cause magazine, the Conservative Digest, and
the Washington Post have confirmed the problem and
called out for reform.

What are the deficiencies in current procedures? Why is a
new approach needed? In our reflection on the problem, and
careful study of GAO and other recommendations, we have
recognized several problems with current cost principles that
have made it difficult to detect — and inded have invited --
diversion of federal funds to political advocacy.

First, there is currently no uniform, comprehensive policy
on the treatment of costs associated with political advocacy.
The clear signal from Congress through appropriations laws and
other actions has not been translated into management controls.
Grant and contract making agencies do not, as a routine matter,
incorporate political advocacy restrictions into award
agreements or cost negotiations. There is no clear, uniform
definition of prohibited activities to

which they can refer. In fact, in both of the major recent GAO
investigations of improper expenditures for lobbying — the
family planning and Lockheed cases — the contractor or grantee
were able to urge that current rules did not ban the
expenditures. One purpose of our proposal is to bring
uniformity and coherence to this area.

Second, under existing procedures, restrictions on the use
of federal funds for political advocacy are exceedingly
difficult to enforce. The commingling of grant or contract
activity with political advocacy activity makes it very
difficult for an auditor, after the fact, to determine whether
federal funds were diverted to improper purposes. GAO reports
have confirmed this. Moreover, even where violations were
uncovered, the current sytem permits of no effective sanction in
most instances. The recovery by the government of a small
allocable share of costs wrongfully billed to the government
provides no deterrent to misconduct, and in many cases is so
small as not to justify enforcement at all. Thus, as you are
aware, in a number of instances in which GAO has uncovered
violations of this sort, it has been forced to recommend no
corrective action.

Third, even when existing restrictions on lobbying are
fully enforced, the provision of a grant or contract to a
particular organization can have the effect of subsidi-zing its

political advocacy activities. Clearer definitions of proper
and improper expenses are needed to avoid inappropriate federal
subsidies of political advocacy activities.

Fourth, when government-funded projects or government-paid
individuals engage in public political advocacy, especially at
the grass roots level, it creates the appearance of government
support for the subsidized positions. Therefore, it is not
surprising that we have received letters from members of the
public, who are understandably concerned when they see their tax
money involved in projects that include political organizing for
causes they may not support.

Now, these are serious problems and I don't begin to
suggest that we have worked out an ideal solution to them.
There may be no ideal solution. The approach in our proposal
has been to effect a greater degree of separation between
political advocacy activities and grant or contract activities.
The essence of our proposal is twofold: first, we make the
direct and indirect costs of political advocacy unallowable on a
government-wide basis. We have heard relatively few objections
to this portion of the proposal. Second, we have proposed that
the federal government not pay for grant or contract activity if
that activity is conducted with personnel, equipment, or
facilities also used for political advocacy.

It is the second portion of the proposal that has provoked
the most comment, and we understand why. Let me make clear for
the record that we appreciate the problems that would be
entailed if the government refused to pay for goods or services
it receives because of relatively minor, technical, or
unavoidable contacts between the contractor or grantee and
government officials. We intend to make major changes in the
proposal to address this problem.

On the other hand, let me also make clear for the record
that the Administration is not simply content with the status
quo, or with mere souped-up accounting and paperwork
requirements that would make life difficult for smaller
organizations but allow the larger entities with high-powered
accounting firms to carry on business as usual. So, even as we
recognize the need for substantial revisions in the proposal, we
have not lost sight of the objective: to reduce the federal
taxpayer subsidy to the political advocacy activities of private
companies and organizations.

Let me outline our current thinking on a revised proposal.
Obviously, I cannot provide specifics on a revised proposal we
have not yet completed. We are still developing ideas in
response to public comments and suggestions. Nonetheless, I can
share with the Committee some of the major areas we are
rethinking.

First, we are considering a redefinition of "political
advocacy" to exclude contacts with members of the Executive
Branch. As far as direct communications with government
officials are concerned, we may essentially confine the reach of
the definition to legislative lobbying. This is in recognition
that grantees and contractors have a wide variety of necessary
and legitimate contacts with those who execute the laws, from
checking with the Small Business Administration about progress
on a loan application to arranging with local traffic officials
for repair of a street light. After due reflection on the
matter, we have concluded that it may not be possible to draw
clear or understandable lines between political and
non-political contacts with Executive Branch officials.

Second, we are considering a modification in our proposal
of requiring a full separation in use of equipment between
political advocacy activities and grant or contract activities.
As a practical matter, we have been persuaded that such a
separation would lead to inefficient duplication of equipment --
with attendant increased costs to the taxpayer — as well as
difficulties in enforcement. We will still provide that, to the
extent that equipment is used for political advocacy, the
allocable portion of the direct and indirect costs not be
charged to the government. But we may not insist that grant or
contract activities be conducted solely with equipment not used
for political advocacy.

Third, we are considering moderating the effect of our
proposal in the araa of personnel by applying the principle of
separation only to registered lobbyists, persons who are
effectively lobbyists, and persons engaged in public or
so-called "grass roots" lobbying. We do not believe that the
government should be paying any portion of the salary of a
registered lobbyist. Nor do we believe that the Federal
government should be paying any portion of the salary of a
person significantly engaged in lobbying. We are considering
various definitions of this, and specifically solicit comments
and suggestions on this point. Finally, we do not believe the
Federal government should pay any portion of the salary of a
person who is publicly engaged in political organizing at a
grass roots level. It could be viewed by many citizens as a
breach of the public trust. Moreover, it is unnecessary, since
the provision of goods and services to the government and the
people does not, as a normal matter, necessitate political
organizing. This is an easy line to draw, and will cause no
hardship on legitimate operations of grantees or contractors.
Of course, the proposal cannot apply to so-called "advocacy"
grants, where Congress has specifically determined that
organizational" activities of this sort should be supported.

I would like to observe that this change in focus to grass
roots lobbying and to direct lobbying on legislation is in
accord with the basic thrust of congressional enactments over
the last several decades.

Fourth, we are considering easing up on our proposal with
respect to buildings and office space. Many affected parties
have informed us that the proposed 5% limitation on political
advocacy activity is too restrictive. On the other hand, we see
no reason why the Federal government should help to defray the
expenses of a facility devoted in major degree to political
advocacy. Given the danger of subsidization of overhead and the
appearance of government support and entanglement with private
advocacy in such cases, we believe it is better policy to
separate grant and contract activity from substantially
political facilities. We are soliciting comments and
suggestions on what an appropriate definition would be.

We intend to maintain the proposed prohibition on the use
of federal funds for dues, contributions, or costs of membership
in organizations heavily involved in political advocacy, such as
most trade associations and many nationwide advocacy groups.
This principle is already applied to state and local government
recipients under Circular A-87, and the GAO has urged that
A-122 be made consistent.

There are some who have argued that it is inappropriate
for us to disallow any costs that would be allocable to a
federal grant or contract. However, A-122 and other cost
principles include many examples of costs which are not
allocated, but simply disallowed on grounds of public policy:
advertising, contributions, fund raising, entertainment, to name
a few examples.

We believe that political advocacy costs, such as the salary of
a registered lobbyist or the rent on a building substantially
dedicated to political advocacy, should be treated similarly.
This is not a punitive rule, but a preventative one: grantees
and contractors can and should be able to comply without
substantial interference with their legitimate, non-political
grant or contract activities.

We are open to other comments and suggestions from this
Committee or other sources. As I think you will agree, the
changes we are now considering from our original proposal are
significant. Therefore, we have announced that we will publish
modified proposals based on these ideas in several weeks. We
will then provide a new 45-day comment period on these modified
proposals, which will last until about two months from today.
We have learned a great deal from the public comment period so
far, and will remain open to constructive comments and
suggestions over the period to come.

Finally, for the record, Mr. Chairman, I would also like to
submit the following documents:

o A description of relevant Comptroller General opinions
on the subject; and

o The OMB release of Friday, February 25, including a set
of questions and answers describing areas in which we
intend to change the current proposal.

This concludes my prepared testimony. I would be happy to
respond to questions.

20-644 0—83-

Mr. Brooks. Thank you, Mr. Wright.

What groups and individuals did OMB consult with before draft-
ing this proposal?

Mr. Wright. Drafting of the proposal was primarily done inter-
nally with consultation with our executive agencies. We were using
the 45-day comment period to be able to get the opinions of those
parties that would be affected on both the contract and the grant
sides.

Mr. Brooks. What statutory authority has OMB utilized to issue
these proposed rule changes?

Mr. Wright. OK, Mr. Chairman. Under the Budget and Account-
ing Act and the Budget and Accounting Procedures Act, we believe
that we have the statutory authority which has been exercised
through the previous circulars that I mentioned and this has been
also verified by the Department of Justice.

Mr. Brooks. Would you give the specific citation, Mr. Bedell?

Mr. Bedell. I believe it is 31 U.S.C. 18a and the following sec-
tions. They stem back to the 1921 Budget and Accounting Act and
the 1950 Budget and Accounting Procedures Act which provide au-
thority for issuing plans, et cetera, for the efficient and economical
functioning of the Government. Those authorities as you know
were passed through to OMB through Reorganization Plan No. 2 of
1970, and by delegation from the President, I believe the Executive
Order was 11541 in 1970.

Mr. Brooks. The reason I was trying to find some statutory au-
thority is I may decide to introduce a bill to kill it.

And I am still not sure that you have pinned down some statu-
tory authority — there is a broad difference of opinion on that, you
know, as to whether you have any statutory authority, really.

But you are sure that that is where you are getting it from?

Mr. Bedell. Yes, sir.

Mr. Brooks. I want to be sure where it is, because dealing with
that is the next step, you understand.

Mr. Bedell. We are sure that we are authorized by those sec-
tions to issue this circular, and many other circulars that you know
we have issued for internal management purposes.

Mr. Brooks. Why is proportional allocation between Federal and
non-Federal funds acceptable for all other cost items but unaccept-
able for lobbying expenses?

Mr. Wright. I am sorry, Mr. Chairman, I am not sure I under-
stand the question.

Mr. Brooks. They use the computer for work in company ABC
on a big contract they have for somebody else. They also use that
computer for Government work and they allocate that portion of
the computer's time to their Government costs. And you don't have
any trouble figuring those kinds of thing out. Why is it that you
want to treat lobbying differently and make it a special category?

Mr. Wright. Mr. Chairman, I think there is a simple answer to
that and that is we do not feel that it is appropriate, and obviously
the Congress has not felt it is appropriate in the past, to use Feder-
al funds directly or indirectly for lobbying purposes and influenc-
ing legislation.

Mr. Brooks. That is not a direct answer, Mr. Wright.

What I asked you was, why do you feel that you cannot allocate
that portion of Government funding that is used for lobbying when
you can very intelligently allocate computer time, and allocate ex-
penses for typewriters and secretaries? What I want to understand
is how you can do that so carefully and so beautifully in all other
categories, but you can't do it in lobbying. I don't say that we
should allow lobbying with Federal money. Don't put that in my
mouth. I didn't say that. I said you should not. What I am saying is
why do you think you cannot add up what they spend on lobbying
and deduct it from their grants or from their total cost?

Mr. Wright. Mr. Chairman

Mr. Brooks. You understand what I am saying?

Mr. Wright. Yes; I understand exactly what you are saying. You
are kind of taking our position a little bit right now, the one that
has caused us a lot of problems, because then you get into your al-
location schemes and particularly when you get into some of the
nonprofits or the smaller organizations, they are the ones that are
saying they would have a very, very difficult time in that alloca-
tion of dividing up lobbying versus nonlobbying.

And that is one of the problems we have got.

Mr. Brooks. Now, under this proposal only those who are invited
in writing to comment on some matter would be free of the effects
of it. Wouldn't that encourage cronyism and favoritism, and all the
favorite — as Mrs. Schroeder says, "lap dogs" would be brought in to
the table to eat Chuckie dog food. But the rest of them would be
outside in the yard scrounging in the neighbor's garbage.

Mr. Wright. Mr. Chairman, are you asking why we ask for com-
ments in writing?

Mr. Brooks. Yes.

Mr. Wright. We are taking the comments both verbally and

Mr. Brooks. No, no, when they are invited. Not comments in
writing, invitations. They have to invite the lap dogs in to eat in
the kitchen.

Mr. Wright. Well

Mr. Brooks. The rest of the dogs are out in the street hustling
garbage.

Mr. Wright. Like I said, Mr. Chairman, we are going to be
making quite a few changes.

Mr. Brooks. Another thing, if political abuses are as widespread
as you suggest, and I do not agree that they are — why have you
exempted some of the largest Federal fund recipients like universi-
ties, hospitals, State and local governments? They hustle us all the
time for big, big dollars.

Mr. Wright. Mr. Chairman, I mentioned that there were three
circulars and that one is Circular A-21, which was issued in the
late 1950's to establish the cost principles for educational institu-
tions. A-87 issued in the 1960's for State and local governments
covered that area. So there is no reason

Mr. Brooks. You deduct the lobbying expenses out of their
grants, and so forth? How do you handle that?

Mr. Bedell. That is unclearly provided for in

Mr. Brooks. How is it provided?

Mr. Bedell. Unclearly provided

Mr. Brooks. Unclearly provided for.

Mr. Bedell. Yes, sir. In A-21 and A-87 it is not

Mr. Brooks. Well, that is an honest statement. I appreciate it.
And I agree. But it makes this one also look unclear.

Mr. Bedell. The existing A- 122 or the proposed change to it?

Mr. Brooks. The proposed change that's already recommended.

Mr. Bedell. Yes, sir, we agree that in many respects it needs to
be changed and hopefully clarified.

Mr. Brooks. One other thing. Do you intend to restrict political
advocacy by individuals as well as organizations that receive Feder-
al funds? How about a veteran who receives a disability payment
from the Federal Government or social security recipients who are
getting payments from the Federal Government? Can they write to
their Congressmen to volunteer their ideas about what the country
ought to be doing?

Mr. Bedell. Yes, sir. And that wasn't intended, I hope it wasn't
covered by even the proposed amendments.

Mr. Brooks. But where are they excluded if they get grant
money?

Mr. Bedell. Well, if they are part of an organization that is re-
ceiving grant funds, then the organization would be covered, but as
individuals receiving some type of compensation from the Govern-
ment, they would not be covered.

Mr. Brooks. Now, in your statement, Joe, you say that you are
considering a redefinition of "political advocacy" to exclude con-
tacts with members of the executive branch and you want to in-
clude only contacts with the legislative branch. Most of these
people don't feel like there is a lot of contact with the executive
branch — either they agree with the administration or they know
the administration is not going to agree with them. But it is Con-
gress, it is the legislative branch that they want to talk with and
you are going to limit it just to the legislative branch? Where is
Congress going to get its information? Why can't legislators be
open to suggestions of all of the divergent groups and opinions, so
that we can get a valid conclusion?

Mr. Wright. The problem we had with the executive branch, and
again thh net was thrown out too far on this one, is that we have a
very difficult time dividing out the conduct of normal business with
the executive branch versus lobbying, and we have not been able to
figure out how that division, or how that definition could be made,
such that this could be enforced.

With the legislative branch it is a little easier because what you
have is registered lobbyists, you have a definition of what grass-
roots lobbying is, and so we believe that we can focus on those pure
lobbying efforts without restricting marketing activities that you
will have in order to sell services to the executive branch or provid-
ing them information that the legislative branch may request in
the forms of hearings or written documents or whatever it is.

Mr. Brooks. Sometimes it is only from registered lobbyists, as
you describe them, that you get a full definition of the facts that
represent their viewpoint. Sometimes the people at the grassroots
don't have that kind of documentation either so they agree. I think
that the truth is the truth whether it comes from a registered lob-
byist in Washington who has 59 lawyers on his personal staff and
has been here for 40 years practicing, or whether it is Joe Doe who

calls from home saying he is not for something, or he is for it. I
think you are going to have trouble drawing that line.

Mr. Wright. We have trouble

Mr. Brooks. It is going to be difficult to say lobbying is lobbying
is lobbying.

Mr. Wright. Yes, we have trouble drawing this line

Mr. Brooks. That line gets tough.

Mr. Wright. Well, see, this was the purpose though, basically,
for all

Mr. Brooks. It is like my little boy on a computer playing a new
game and the lines go all over — that's kind of the way this looks.
This is not your best effort. I am glad you didn't have anything to
do with it. You didn't draft this, did you?

You did not draft this, did you, Joe?

Mr. Wright. No, sir, I didn't.

Mr. Brooks. Did you recommend it?

Mr. Wright. Did I recommend this be drafted?

Mr. Brooks. Did you ask Mr. Horowitz to draft this proposal?

Mr. Wright. Mr. Chairman, this was a decision to proceed by the
administration and I support the decision.

Mr. Brooks. All right. Are you now going to stay with this ver-
sion or are you just going to tear this one up and start over?

Mr. Wright. No, sir, we are going to be coming out with a re-
vised regulation in several weeks. And we are going to go through
a comment period all over again.

Mr. Brooks. And you are going to go through a hearing all over
again, if it isn't revised well. Why don't you just tear this one up
and start over?

Mr. Wright. Because if you tear this one up literally, what you
are going to be doing is taking away the comments that people and
organizations have been working on now for 2 or 3 weeks and we
may as well take advantage of the work they have already done to
come up with better definitions on the cost principles. That's all.

Mr. Brooks. When you have finished reading this record and
hearing these people who represent hundreds and hundreds of or-
ganizations that believe the best thing you can do with this is to
withdraw it, and then start over, ab initio, you will start anew.

Mr. Wright. In effect that is what we are going to be doing when
we come out with another set of revised regulations.

Mr. Brooks. I recognize the gentleman from New York, Mr.
Horton.

Mr. Horton. Thank you, Mr. Chairman.

I am concerned about this procedure also. I think it would be
better to recognize that you have already received many excellent
comments. It seems to me that you can certainly still use those
comments, even though you don't proceed with the proposal you
have made. Well, let me ask you, do you think that there has been
a mistake made with the A- 122 proposal?

Mr. Wright. Mr. Horton, I believe that the purpose and the
intent to come up with clear guidelines was correct. I think that
the approach and the package that was first put out needs to be
thrown out and substantially revised.

Mr. Horton. You made a Freudian slip.

Mr. Wright. No, I didn't. I just jumped in front of myself in the
sentence.

Mr. Horton. It should be thrown out. But it seems to me that
you would be on much sounder ground if you went back and actu-
ally had some hearings and meetings with people. You are in a
very, very, difficult, complex legal thicket. When you start talking
about defining lobbying activities, when you talk about advocacy,
when you talk about limiting people's access to elected officials or
administration officials, you are dealing in very fragile issues, and
you may very well find yourself subject to constitutional questions
that could be the result of lawsuits. With something so complicated
as this, I think it would be very much desirable to have you go
back to the drawing board and give some thought to specifically
how you want to handle this without regard to what has happened
in the past. As I said earlier in my testimony, I had constituents
come in to see me about the proposal. They gave me a copy of it
and I just couldn't believe it. They said that they would not even
be able to talk to me next time when I had office hours out in my
district. And I agreed with them. And I just think that even though
you are trying to accomplish a goal, you won't accomplish it by
rushing this proposal through.

This press release says the extension will provide another 2
months for comment on proposed revisions to Circular A-122, enti-
tled "Cost Principles for Non-Profit Organizations," and then this
extension will be accompanied by publication in 2 weeks of a re-
vised proposal which will start a new 45-day comment period. I am
a lawyer, and I have been up here for a long time, but if you said
to me, Frank, I will give you 2 weeks to sit down and draw up
these regulations, if I spent 24 hours a day with all the staff that I
needed, I still wouldn't be able to come up with something that
would run the gauntlet.

I think you need more time and I think you need more consulta-
tion. I think you need some consultation with the staff of this com-
mittee to try to come up with something that can be acceptable.
We are talking about trying to prevent Federal funds going for
pure and unadulterated lobbying, and that is a long way from what
you are trying to do here. As I said earlier, this proposal is nothing
more than a gag rule.

In your statement, you have given several examples of reim-
bursement that shouldn't be allowed. The pages of the statement
are not numbered, but about halfway through there is a bullet in
the middle of the page, and next to it is a notation that in a recent
investigation of Lockheed's lobbying campaign on a proposed $10
billion procurement of the C-5 aircraft, GAO found that nearly
half a million dollars in lobbying costs were included in the compa-
ny's overhead expenses, 54 percent of which would be picked up by
the Federal taxpayers. Well, I don't think that anybody would dis-
agree with you that that is wrong, and something should be done
about it.

Now, there are procedures as you well know, that can be used to
do something about that. There are Inspectors General in all of the
agencies including the Department of Defense, which incidentally,
I might say, we did get through in a bill last year, but there hasn't
been a nomination by the President for the Department of Defense

IG, and I think 4 or 5 months have gone by. Is there any expecta :
tion that shortly the administration will be sending up a name to
fill the position of Inspector General for the Department of De-
fense?

Mr. Wright. Yes, sir. There is.

Mr. Horton. Well, certainly that would come under the purview
of the Inspector General's operation, and I would think that he
could handle that without any regulations, couldn't he?

Mr. Wright. Mr. Horton, again he can if you have clear defini-
tions of what they are to audit or investigate and one of the big
problems that we have got here, and the reason that A- 122 was
put in place, is because we were requested to come up with clear
definitions of cost principles, what is allowable, what is not allow-
able.

Mr. Horton. What is in the contract?

Does the contract provide that any of those funds could be used
for lobbying? Now there is a contract, isn't there?

Mr. Bedell. Yes, sir. The contracts and the ones in question I am
sure refer to what is known as part 15 of the Armed Services Pro-
curement Regulations now known as the Defense Acquisition Regu-
lations. They incorporate by reference essentially the same cost
principles that we are talking about here. But it is very unclear ex-
actly how the lobbying expenses should be charged. It is clear that
they can't be direct charges to the Government, but it is unclear
whether they can be indirect charges. Now, the Comptroller Gener-
al has held in many decisions that it is inappropriate, unlawful for
them to be charged indirectly to the Government. But both Lock-
heed and Boeing have said that they disagreed with that and that
they were appropriate charges and sought the 54 percent that the
Government was going to

Mr. Horton. Well, they ought to go to court on that one because
I think if there is 54 percent reimbursement, and they are doing
that kind of lobbying, and spending nearly half a million dollars on
it, then I think there ought to be some court interpretation as to
what were lobbying costs. Let the court determine that particular
dispute. And that is really how you are going to have to decide
these questions ultimately, anyway.

But if you do feel that there is a valid reason for that type of
clarification, then I think you ought to go back to the drawing
boards and spend some time on it; don't do it in a hasty way that
you contemplated. All you are saying now is that somebody in 2
weeks is going to come out with another proposal, and I don t care
who handles it, they are not going to be able to come up with the
kind of proposal that is going to walk through this gauntlet. When
I use that expression, I am not talking about a room full of people
here that testify before this committee, but I am talking about
legal complexities that involve the various constitutional questions
of freedom of speech, the ability of people to communicate with
their elected Representatives, and so forth. To walk through that
maze is going to take some time, and I think you ought to spend
more time than 2 weeks. I would hope that you could pull the
whole thing off the drawing boards and say, look, we are going to
start all over, as the chairman said, from the very beginning and
come out with something that really attacks the problem. And I

think the more simple your solution, the better off you are going to
be.

Mr. Wright. In effect, Mr. Horton, that is what we are going to
be doing. Now, we are going — let's talk about the process a little
bit. We think that we will be able to make enough substantial
changes to the proposal within a 2-week period of time so that we
can get some good responses during the next month and a half. If
we find that we cannot, or we get into serious legal problems or we
have not made it simple enough, or there are still major disagree-
ments about it, I have absolutely no problem with going ahead and
extending that time period. We do not see coming out with any
final revisions to the A-122 until around the summer, 4 or 5
months from now. And if we need more time than that, we will
take it. However, this is something — this is an area where we have
been requested to come up with clearer definitions and I don't be-
lieve that you would have the problems like you are talking about
right now if we didn't provide loopholes by the fuzziness of the ex-
isting regs and that is all we are trying to clarify.

Mr. Horton. Well, you are going to have a problem with regard
to enforcement, you are going to have a problem as to lobbying of
elected officials, or advocacy with elected officials, you are going to
have trouble in definitions, you are going to have trouble with con-
stitutionality questions, you are going to have trouble as to wheth-
er or not people can make contacts with the administration, et
cetera. I can think of thousands of problems, and I don't need to
spend the time now going through the different types that are
going to arise as you try to walk through this thing. But I do think
that you would be well advised to take more time. I have some
question with the procedure that you are using, and I don't know
why you have to do things that way. I really don't see a good sound
reason for it. I have no problem with your coming up with some-
thing by way of a Circular A-122 to try to establish cost principles
for nonprofit organizations to accomplish the kind of goals that the
chairman and I were both talking about and which I think you are
trying to accomplish. But I just think that the procedure binds you,
and that is going to be a very difficult thing for you in 2 weeks to
come up with that kind of thing. You cannot go back with the 122
that is before you and just make a couple little changes and then
come back with it because that is not going to solve the problem.

Mr. Brooks. Mr. Lantos, the gentleman from California.

Mr. Lantos. Thank you, Mr. Chairman.

Mr. Wright, you are here on a mission of damage control and
you are doing a very good job of it. I want you to understand that
since you had nothing to do with the drawing up of this circular,
my questions are not personal but they are related to the process
within OMB.

One of the problems it seems to me that we have in this Govern-
ment in the wake of Watergate, is to restore credibility to Govern-
ment. I really wonder whether your opening statement does that
and if you will allow me, I want to quote from your opening para-
graph.

You say "Our Federal Register notice of January 24 was just
that: a solicitation of comments." But I don't think that is true. I
think your Federal Register notice of January 24 was a solicitation

of comments on what OMB thought was the best OMB could come
up with. And I truly wonder whether you would not be far better
off if you would come before us and say we made a very serious
mistake. We goofed. Or whoever did this is symbolic of the rigid
ideological doctrinaire approach which we have come to see from
this administration on so many issues totally unrelated to the real
world. But I don't think you are going to get away, and you can
sense this on the Republican side also, by trying to minimize what
in fact happened here because while this problem is not nearly as
severe as the problems we are probing at EPA, it is symptomatic of
something far deeper than just the poorly drafted circular. When
the ranking Republican on this committee, my distinguished
friend, refers to this circular as outrageous, when responsible
people refer to it as insidious and crazy, I don't think you can just
dismiss it by saying that it will need a bit of revision.

I think you should come here, or better yet, David Stockman
should come here and say, "Mea culpa, mea maxima culpa," we
made a very serious mistake, we know that we made a mistake,
you know that we made a mistake, we want to go back to the draw-
ing board, then start all over again. OMB can be accused of a lot of
things, but it is not a stupid agency. David Stockman is not a
stupid official of this Government. He is one of the brightest and
the agency is filled with very bright people. What we are dealing
with here, and I do want to come to your issue of process, what we
are dealing with here is a quintessential manifestation of a doctri-
naire idealogical approach to social problems totally divorced from
reality. You did achieve something remarkable. You united for the
first time the broadest spectrum of private and public organiza-
tions in the history of this Nation against your proposal.

Now, shouldn't this give you or someone in OMB pause?
Shouldn't this be an occasion to explore perhaps a touch of humil-
ity in your approaching social problems? I know you will withdraw
this; whether technically you will withdraw it or not is really sec-
ondary, you will start afresh. You will be ultracareful, you will
come in with something that we will be able to live with. At least I
hope you will.

But I think we will have to do more than just redraft this circu-
lar. I think the way the circular came out should have a profound
lesson for the processes within this administration because I don't
think that it is isolated from, for instance, the demand that a Ca-
nadian Government film be designated as propaganda. That
demand by another agency of this Government has made us the
laughing stock of the democratic world and that brilliant circular
will also be withdrawn. Because it also stems from a narrow, self-
righteous doctrinaire ideological view of the world. You would
score far better by me if you would admit this and not just pretend
this is a complex issue and we have to do better. Because if it is a
complex issue, you certainly ought to have solicited the advice and
the counsel of Congress, of private business and nonprofit organiza-
tions, a broad range of groups that have an interest in this and
then come up with a far better product. I don't think you will get
away with presenting something outrageous and then sort of slid-
ing into a slight revision. I think this is analogous to say that a
jobs bill is unneeded and then a few weeks later supporting a jobs

bill which is what this administration is doing. I think it is analo-
gous to a zero-zero option in nuclear disarmament and then sliding
away from it and recognizing that intermediate possibilities are
rational and logical. I have only one simple question:

Stepping out of your official role for a moment, how would you
characterize this whole episode?

Mr. Wright. Congressman, you want me to step out of my offi-
cial role in the middle of a hearing?

Mr. Lantos. Well, I think the chairman would let you do that.

Well, don't step out of your official role — just give us an honest
answer. Just give us an honest answer.

How do you appraise the performance of OMB in this particular
instance? On a scale of 10, where are you?

Mr. Wright. I will give you a very short answer. I think that
what you are doing is taking an attempt to provide better defini-
tions to cost principles in an OMB circular which has been request-
ed not only by the inspectors general, but by the agencies over the
years, and you are expanding it into a philosophical difference be-
tween the two political parties which I believe puts much more
thought process, both devious

Mr. Lantos. Not the two political parties, the ranking Republi-
can was most critical of you. More critical than we Democrats have
been.

Mr. Wright. I don't believe from a philosophical standpoint he
was. I would say from the process standpoint he was and I believe
he was justified in doing so. Plus the fact I first brought out, if we
did not feel that we made a mistake in the first issuance within the
Federal Register, we would not say that we are going to come out
and put out another revised proposal.

Mr. Lantos. But it is self-evident that you made a mistake. I
don't think that is a great admission.

Mr. Wright. I agree with you and so therefore we didn't even
pretend when we first came up that we were going to fight that
issue. That was not a good package that first went out, and it went
way too far. We have already admitted that but I believe for you to
take it into a philosophical issue when we are really into a fairly
boring process of trying to define better cost principles is really
going beyond what was ever intended or is the fact.

Mr. Lantos. Thank you, Mr. Chairman.

Mr. Brooks. Mr. Waxman, a very distinguished member of this
committee from California.

Mr. Waxman. Thank you very much, Mr. Chairman.

I want to thank you also, as other colleagues have done, for hold-
ing this hearing. This hearing will hold up to public scrutiny the
outrageous proposal that OMB has circulated and I am pleased to
see they now reject their own original thoughts. But I am not so
confident that in redoing this we are going to see a much better
proposal for the very simple reason that OMB is stepping in an
area that is very, very frightening. They are stepping on the Con-
stitution of the United States and the ability of citizens of this
country to express their point of view. I realize these two witnesses
here today have handled themselves well in spite of the redeye
flight, which Mr. Lantos and I are quite familiar with, coming from
California. But you are really here to catch the flack. Mr. Stock-

man is not here, Mr. Horowitz is not here; they are not here to
answer what their original purposes were. I suspect that Mr.
Lantos' description of their original purpose is quite accurate, that
the original purpose of motivating this action by OMB was based
on a deep and narrow ideological point of view which is willing to
throw out the Constitution of the United States to get at the en-
emies of those people who believe as the self-righteous and the
hard rightwing see the world. Their enemies are the people in the
family planning clinics, the people working on social services pro-
grams of one sort or another, and all the nonprofit corporations.
Those are the people they see as their enemies. They are the ones
who come in every year and tell Congressmen that there are chil-
dren in this country who are dying, there are people who are starv-
ing, that unless government acts, we are going to see tremendous
amounts of injustice go on, and they just as soon not have Congress
hear these stories from people who know about those things be-
cause Congress then responds by passing laws, sometimes appropri-
ating money, in trying to do something about these problems.

I think that you can't come up with a good solution because I
think the whole project is based on the wrong motives. I could go
into questions with you about what political advocacy means and I
just ask one question: Will you look at political advocacy and the
costs to the Federal Government; are you looking at the amount
that is deducted from taxes by corporations who pay lawyers to
present their point of view in a way that is most favorable? Are
you looking at the deductions that are taken by corporations which
means taxes not paid into the Federal Government by advertising
that is considered institutional as opposed to advocacy? Are you
looking at the loss of money in that respect so that you can see
whether the taxpayers that you express concern about in your
statement are unhappy about losing these Federal dollars? Are
their complaints in that regard answered?

Mr. Wright. Let me answer in two ways, Mr. Waxman.

First of all, when you say that the A- 122 revisions are primarily
against

Mr. Waxman. Now, I asked you a question. And my question is
this: Are you going to look at revisions? The reason you have a cir-
cular at all is because you say taxpayers are angry that their
money is being used to lobby. Now, taxpayers are angry that their
money is being used to lobby because their money and other peo-
ple's tax moneys are not coming in, because they are being taken
off as a deduction. I consider that an expenditure of the public
funds, because those are funds that otherwise would be collected by
the Federal Government by way of taxes. Are you looking at that
issue at all?

Mr. Wright. First of all, OMB does not look at tax issues
through its circulars, No. 1.

No. 2, I have to add this for the record, and that is that if we
would have just gone for changes in Circular A- 122, then I would
agree with your comments as to the organizations that would be
affected by this, but we did not do that. We purposely extended it
into procurements and contracts through DOD, GSA and NASA for
exactly that reason.

And by the way, the objections that we heard were not from the
nonprofits to begin with

Mr. Waxman. Mr. Lantos pointed it out accurately, and we will
see who is here next time. I suspect that the nonprofit people will
still be here after your next proposal, because I think that is the
ideological genesis of this whole effort by OMB. So you are not
looking at the tax consequences and how taxpayers are losing dol-
lars because of lobbying by corporations. That is clear.

Now, let me ask you about another issue. OMB is concerned
about the amount of money that is spent on regulation. This ad-
ministration has told us that we don't want to have regulations
that cost a lot of money. Have you done a fiscal impact study on
what these proposed regulations would cost?

Mr. Wright. No, we have not.

Mr. Waxman. Do you plan to?

Mr. Wright. We will be looking at that, yes, before we come out
with any final regulations.

Mr. Waxman. Doesn't this administration look at the costs of
regulation, the impact costs both on the citizens that are required
to comply with it, as well as the governmental costs that are going
to be required to enforce it?

Mr. Wright. As best we can, yes, sir.

Mr. Waxman. You think you can make a good evaluation of that
in a couple weeks?

Mr. Wright. No, absoutely not. Within a couple of weeks, we are
planning to come out with a revised proposal; go through a com-
ment period again, take a look at the comments, and then spend
several months, as much time as we need, before we come up with
anything final.

Mr. Waxman. It sounds to me like you are just throwing up trial
balloons and seeing who shoots at them. Don't you do some study
in advance to try to determine whether the proposals you put for-
ward make sense or not?

Mr. Wright. Yes, sir, we do.

Mr. Waxman. But you are not going to have a financial impact
study on these proposed regulations at all. You are going to wait to
see what the comments are and then do some study later, presum-
ably.

Mr. Wright. There is no reason to do that within several weeks
when you are going out to get additional comments, no, sir.

Mr. Waxman. Well, you are going to put forward some proposed
regulations. Before you put forward your proposals, don't you want
to find out how much it is going to cost people to comply with those
proposals?

Mr. Wright. No, sir, because we are not going to have any idea
what the regulation is going to be until we get the comments and
we know what to measure the cost up against.

Mr. Waxman. You have got a real chicken and egg problem over
there, at OMB, don't you?

If you are going to put forward a proposal with the administra-
tion's idea of what to do, before you know what your idea is,
shouldn't you study it and think it through and then see whether
you missed out on some points? Obviously, with this proposal, you
missed out on a lot of considerations. So I think, Mr. Chairman, I

would just conclude by saying that at this hearing, you Mr. Wright,
are catching the flack, but I hope you will go back and tell Mr.
Horowitz and Mr. Stockman and others in the administration that
there is a very cool reception in the Congress to this whole idea.
Furthermore, within your own determinations at OMB before you
come up with these regulations, some of us would like to know that
you have looked at not only the Constitution of the United States
and how many individual civil liberties are going to be trampled
upon, but whether the people are going to be paying for the cost of
this in a way that will make no fiscal sense whatsoever; that you
have looked at whether the regulation is going to be too burden-
some for those who have to live with it, and that the cost to the
Government to try to make all these fine distinctions is going to be
so incredible that we are going to have fill OMB with a whole army
of people just to go out and investigate and inspect and scrutinize
whether anybody is saying anything to their Congressmen that
may well be out of line with what OMB thinks. That is why we
have a Constitution. These kinds of exercises shouldn't be done by
bureaucrats. They shouldn't even be done by Congressmen. We pro-
tect the public under the Constitution from the whims even of the
majority of the country and that is why I think your whole project
is doomed to failure and should be abandoned completely, except
maybe in a very narrow way to enforce the laws that are on the
books now that make it a crime to use Federal money to come in
and lobby.

Thank you, Mr. Chairman.

Mr. Brooks. Thank you very much, Mr. Waxman.

I might say that when things get dull, you might want to make
an interesting study on lobbying. You might take a look at that
Lockheed operation when Mr. Weinberger, Mr. Carlucci and Lock-
heed worked very carefully at lobbying Congress. They were lobby-
ing the legislative branch fully, not the executive. They had print-
outs — and I have a copy — of all the Members of Congress and after
they finished lobbying they gave grades to individual Members. I
don't know what kind of grade I got. At any rate, they had a list of
who was going to see various Members, for example. Do you know
who was going to see Mr. Addabbo on the printout? Carlucci, one
on one.

Bill Alexander? General O'Malley was going to see him. Brooks,
I don't see Brooks on here. Let me find it; let me see if they have
got Brooks on here.

Brooks, Jack Brooks — Marine or Army followup. Letter sent May
24. Member contact, Bernard. He's a Member of Congress from
Georgia, very nice fellow, and a subcommittee chairman. I think
that is important. That is really impressive. Horton — let me tell
you about Horton.

Frank Horton, Member contact McDonald. He's from Georgia.
He is independent. The DOD and Air Force will see Mr. Horton,
RKC. I don't think we ever figured out who RKC was? He is some-
body who sees lots of people, though, he is named a lot of times.

Isn't that interesting? That's the kind of thing you might look
into — whether it is appropriate for the Defense Department to use
defense contractor expenditures and printouts and have a little
headquarters meeting every morning to regroup and update their

information on what the Members are doing. It was a fascinating
little exercise. You'd have thought they were fighting a war, but
that is what they did and here is the printout. You may have a
copy of it, if you would like. And if you want to deduct all those
costs from Lockheed as lobbying, go ahead. That would be interest-
ing. Carlucci won't be calling any more for the Defense Depart-
ment, but I guess somebody else will. They spent lots of money and
graded Congress on how they did. I think that is fascinating. I
would just love to hear their evaluation. If OMB wants to grade us,
you all can run your little printout, too. We'll get a printout on
OMB on the record too, because everybody will get to vote on this
proposed regulation if you keep bringing it back like it is.

Well, we thank you and call on Mr. dinger, a very distinguished
member of this committee and a former bureaucrat. I wish he had
been down there at OMB as he would have written a much better
regulation. Mr. dinger.

Mr. Clinger. Thank you for those kind words, Mr. Chairman.
Having been a bureaucrat, I am not sure that that is the case be-
cause I think — Joe, I think you get the sense from questioning the
committee that nobody is very happy with this redraft of A- 122
and for the record, do I understand you to say that the version that
we had before us is or has been withdrawn?

Mr. Wright. The process, Mr. Clinger, is we will be coming out
with a substantially revised version in 2 weeks.

Mr. Clinger. In 2 weeks time.

Mr. Wright. In effect, it will replace the one that is existing
right now, so yes, from a practical sense it will be withdrawn.

Mr. Clinger. There has been some allusion here that you were
contemplating changes and some of the questions indicated that
these might only be minor cosmetic revisions. Is that the way you
would characterize how you propose to redraft this?

Mr. Wright. No, sir. .They are going to be fairly substantial
changes.

Mr. Clinger. There has also been suggestion here, and I think
this is critical to the whole discussion, that there is some hidden
agenda in attempting this exercise at all, that there are some ulte-
rior motives, that there is ah attempt here to put a gag rule on
particular groups, whether in the humanitarian area or whatever.
You have characterized it primarily as designed to implement cer-
tain cost principles. What is your response to the charge that this
is a hidden effort to place a gag rule on particular groups within
the country?

Mr. Wright. Mr. Clinger, I don't- look upon this as placing any
gag rule at all on groups, or the first amendment of the Constitu-
tion. I look upon this as an attempt to make sure that the Federal
Government does not pay for lobbying costs it considers inappropri-
ate. If you want to call it lobbying — which I guess gets into the
entire area of speech as well as writing — they can do anything they
want to, but we do not want to pay for it out of taxpayers' money
when it is considered inappropriate by the executive, and the legis-
lative branches.

It is not a question of whether or not they speak. It is a question
of what activities does the Federal Government pay for out of tax-
payers' funds. That's the question. Now, I have heard all of this,

you know, today, and to be honest I was a little surprised that this
would be criticized from a philosophical point of view. But if it had
been intended to be a gag rule, then we would not have extended it
to the contracts and procurements through DOD, GSA and NASA.
We purposely extended the same cost principles for exactly that
purpose so that it would be even-handed across the board, across
the spectrum. That is exactly why you found groups from both
sides coming in with equal concern.

Mr. Clinger. So you don't see this as a liberal-conservative, or
right-left issue? You are saying that it treats everybody badly.

Mr. Wright. That is not the purpose of it.

Mr. Clinger. What about suggesting that there are laws on the
books at the present time that do deal with this issue and that if
we just made a more assiduous effort to enforce the existing law,
we could get at the root of the problem. You obviously feel that
there is a need to go beyond that to some extent.

Mr. Wright. No, no. I agree with your statement entirely. There
are laws out there to enforce, but I believe that the additional
effort to enforce them requires a better definition of what is im-
proper and what is proper. That's all. I don't believe we need any
additional laws.

Mr. Clinger. OK, thank you.

Mr. Brooks. Thank you very much, Mr. Clinger, and thank you
Mr. Wright. Thank you Mr. Bedell, you were gracious to have come
down.

Our next witness is Charles A. Bowsher, the Comptroller General
of the United States. He is a graduate of the University of Illinois,
received an MBA degree from the University of Chicago in 1956,
and was associated with Arthur Andersen in Chicago after gradua-
tion.

In 1967 he was Assistant Secretary of the Navy for Financial
Management, appointed by President Johnson, and continued there
until 1971. He went back to Arthur Andersen as a partner in the
firm and later directed their Government service industry program
here in Washington. He is accompanied today by Milton J. Socolar,
Special Assistant to the Comptroller General, a former Acting
Comptroller General. Mr. Bowsher, it is a pleasure to welcome you
here today joined by your distinguished and able assistant, Mr. So-
colar.

STATEMENT OF CHARLES A. BOWSHER, COMPTROLLER GENER-
AL OF THE UNITED STATES, ACCOMPANIED BY MILTON J. SO-
COLAR, SPECIAL ASSISTANT TO THE COMPTROLLER GENERAL

Mr. Bowsher. Thank you, Mr. Chairman.

I have a short statement, and I will read just the front part and
be happy to take any questions.

We are here today to discuss the Government-wide regulations
recently proposed by the administration to control political advoca-
cy or lobbying with appropriated funds by Government contractors
and federally funded nonprofit organizations.

The Office of Management and Budget, the Department of De-
fense, the General Services Administration, and the National Aero-
nautics and Space Administration have simultaneously proposed

the adoption of identical regulations that prohibit the reimburse-
ment of political advocacy expenses charged to Federal grants or
contracts.

These proposed regulations are in part the result of a series of
recommendations contained in GAO reports and decisions that the
administration establish uniform Government-wide regulations pro-
hibiting Government contractors and federally funded nonprofit or-
ganizations from expending appropriated funds for lobbying activi-
ties.

While we endorse the concept of uniform cost principle regula-
tions governing political advocacy activities, we have certain reser-
vations about the proposed regulations.

The Federal Government pursues its aim and promotes its pur-
poses through payments of about $100 billion annually to contrac-
tors and grantees. Every recipient of a Government contract or
grant is unquestionably free to exercise the right to political ex-
pression free of restraint. It is equally clear, however, that the cost
associated with political advocacy should not be financed with tax-
payer funds through charges to Federal contracts or grants. The
proposed regulations seek to assure that Federal funds do not fi-
nance political advocacy.

Now, we have two primary concerns with the proposed regula-
tions which we have discussed in detail with OMB officials in the
last few days. First we have had serious problems with the way the
regulations treat allocation of costs between unallowable and al-
lowable activities.

Our second concern relates to the scope of prohibitive activities
included within the definitition of political advocacy. We under-
stand that OMB is prepared to make significant revisions to its ini-
tially proposed approach — changes which will go far toward ame-
liorating their far-reaching effect. Nevertheless, even with OMB's
suggested revisions, there will remain an essential feature that
troubles us.

Under the proposed cost principles, and as they might be revised,
costs representing political advocacy are not merely disallowed but
may cause otherwise legitimate costs also to be disallowed. The full
salary costs of individuals are unallowable if any part of their work
constitutes political advocacy or if their organization has required
or induced them to contribute to any organization engaging in po-
litical advocacy during nonworking hours. The allowable portions
of other expenses are also unallowable if any portion of the items
involved are used for political advocacy. Under the revisions OMB
is apparently prepared to make, some threshold amounts of politi-
cal advocacy will control but the basic concept will remain.

In essence, grantees and contractors will be penalized for having
individuals engaged in political advocacy doing any work otherwise
properly chargeable to a grant or contract. We have serious reser-
vations concerning the legal enforceability of these penalty provi-
sions, as well as their desirability from a policy standpoint. Con-
tractual provisions requiring forfeiture of reimbursement for other-
wise allowable costs because of actions unrelated to contract or
grant purposes generally will not be enforced. Under the OMB pro-
posal it is clear that there is no reasonable relationship between
the proscribed activities and the requirement for forfeiture where

the Government is not being charged in any way for those activi-
ties. We do not understand why engaging in political advocacy on
one's own time is any different from engaging in any other non-
reimbursable activity on one's own time. The key requirement is
only that the nonallowable activity be separated from public fi-
nancing.

Since the penalty can be so great, it could have a chilling effect
on grantees and contractors in communicating with their program
agencies concerning legitimate business. It would also make it nec-
essary for grantees and contractors to add additional staff and
equipment to replace staff and equipment that has been used previ-
ously for both permissible and impermissible activities on a cost al-
location basis. This would increase the Government's cost for the
same goods and services. Also, the requirement for small grantee
organizations to physically separate permissible and impermissible
activities could place such a strain on their finances as to threaten
their continued viability.

We are also concerned with the scope of the definition of political
advocacy, although here too, OMB indicates an intent to make sub-
stantial changes.

Mr. Chairman, I know you have a time problem today and I will
put aside the rest of the statement and have it inserted in the
record. I would only like to say that we are more than willing to
work with the Congress, this committee and OMB to work out
some changes in the regulations that could do what we think is
necessary and that's to bring some uniformity to this whole area
and some definition as to what is permissible and what is not per-
missible. We do not think that we have to go as far as OMB did.

[Mr. Bowsher's prepared statement follows:]

20-644 0-83 5

UNITED STATES GENERAL ACCOUNTING OFFICE

FOR RELEASE ON DELIVERY
EXPECTED AT 9:30 A.M. EST
TUESDAY, MARCH 1, 1983

STATEMENT OF

CHARLES A. BOWSHER

COMPTROLLER GENERAL

OF THE UNITED STATES

BEFORE THE

SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY

COMMITTEE ON GOVERNMENT OPERATIONS

HOUSE OF REPRESENTATIVES

Mr. Chairman and Members of the Subcommittee:

I am here today to discuss the Government-wide regula-
tions recently proposed by the Administration to control
political advocacy or lobbying with appropriated funds by
government contractors and Federally funded non-profit orga-
nizations. The Office of Management and Budget (OMB),
Department of Defense (DOD), General Services Administration
(GSA) and the National Aeronautics and Space Administration
(NASA) have simultaneously proposed the adoption of identi-
cal regulations that prohibit the reimbursement of political
advocacy expenses charged to Federal grants or contracts.

These proposed regulations are in part the result of a
series of recommendations contained in GAO reports and deci-
sions that the Administration establish uniform Government-
wide regulations prohibiting Government contractors and
Federally funded non-profit organizations from expending
appropriated funds for lobbying activities. While we
endorse the concept of uniform cost principle regulations
governing political advocacy activities, we have certain
reservations about the proposed regulations.

The Federal Government pursues its aims and promotes
its purposes through payments of about one hundred billion
dollars annually to contractors and grantees. Every recip-
ient of a government contract or grant is unquestionably
free to exercise the right to political expression free of
restraint. It is equally clear, however, that the costs
associated with political advocacy should not be financed
with taxpaper funds through charges to Federal contracts or
grants. The proposed regulations seek to assure that
Federal funds do not finance political advocacy.

We have two primary concerns with the proposed
regulations which we have discussed in detail with OMB
officials. First, we have serious problems with the way the
regulations treat allocation of costs between unallowable

and allowable activities. Our second concern relates to the
scope of prohibited activities included within the defini-
tion of political advocacy. We understand that OMB is
prepared to make significant revisions to its initially pro-
posed approach — changes which will go far toward ameliora-
ting their far reaching effect. Nevertheless, even with
OMB ' s suggested revisions, there will remain an essential
feature that troubles us.

Under the proposed cost principles, and as they might
be revised, costs representing political advocacy are not
merely disallowed but may cause otherwise legitimate costs
also to be disallowed. The full salary costs of individuals
are unallowable if any part of their work consistitutes
political advocacy or if their organization has required or
induced them to contribute to any organization engaging in
political advocacy during nonworking hours. The allowable
portions of other expenses are also unallowable if any por-
tion of the items involved are used for political advocacy.
Under the revisions OMB is apparently prepared to make, some
threshhold amounts of political advocacy will control but
the basis concept will remain.

In essence grantees and contractors will be penalized
for having individuals engaged in political advocacy doing
any work otherwise properly chargeable to a grant or
contract. We have serious reservations concerning the legal

enforceability of these penalty provisions as well as their
desirability from a policy standpoint. Contractual provi-
sions requiring forfeiture of reimbursement for otherwise
allowable costs because of actions unrelated to contract or
grant purposes generally will not be enforced. Under the
OMB proposal it is clear that there is no reasonable rela-
tionship between the proscribed activities and the require-
ment for forfeiture where the Government is not being
charged in any way for those activities. We don't under-
stand why engaging in political advocacy on one's own time
is any different from engaging in any other non-reimbursable
activity on one's own time. The key requirement is only
that the non-allowable activity be separated from public
financing.

Since the penalty can be so great, it could have a
"chilling effect" on grantees and contractors in communicat-
ing with their program agencies concerning legitimate busi-
ness. It would also make it necessary for grantees and
contractors to add additional staff and equipment to replace
staff and equipment that had been used previously for both
permissible and impermissible activities on a cost alloca-
tion basis. This could increase the Government's cost for
the same goods and services. Also, the requirement for
small grantee organizations to physically separate permis-
sible and impermissible activities could place such a strain
on their finances as to threaten their continued viability.

We are also concerned with the scope of the definition
of political advocacy, although here too, OMB indicates an
intent to make substantial changes. OMB initially defined
political advocacy as including attempts to influence
Federal, State, and local legislative outcomes through con-
tributions, endorsements, or publicity, and attempts to
influence governmental decisions through communication with
any participant in the decision-making process or the gen-
eral public. The term Governmental decisions is in turn
defined as including legislation on the Federal, State and
local levels, administrative decisions, and formal informal
adjudications.

We are uneasy about including "attempts to influence
the administrative decision-making process" within the scope
of unallowable political advocacy costs in the absence of a
statute or other evidence of Congressional intent to go that
far. While we recognize that lobbying of executive branch
personnel with Federal funds by contractors or grantees is a
legitimate area of concern, we foresee major difficulties in
distinguishing between contacts between contractors or gran-
tees and agencies which are permissible — indeed necessary —
to the pursuit of the contract or grant objective and those
contacts which constitute impermissible political advocacy.

As pointed out, OMB officials have stated that the
proposed cost principles represent only a "first draft"
to be modified in a great many respects before they
become final. We think the issue covered by the proposed
regulations is an important one which should be subject
to full debate by all interested parties. We agree with
the underlying premise that taxpayers should not be
forced to support causes with which they might be in sub-
stantial disagreement. Indeed, we subscribe to the idea
that taxpayer funds should be devoted to governmental
purposes which do not include, except in rare circum-
stances, the financing of political advocacy. We think
that any regulations go too far, however, when they
require a Federal contractor or grantee to forfeit reim-
bursement for legitimately incurred expenses merely
because the contractor or grantee has engaged in perfect-
ly proper political advocacy with non-Federal funds.

It is evident that revision of proposed cost princi-
ples which deal with unallowable costs is required and
that changes in the scope of the definition of political
advocacy are also needed. We support the willingness of
the OMB officials to deal with the concerns which have
been raised, and we are prepared to work with OMB in
developing revised cost principles which will protect
both the taxpayer's dollar and the Federal grantee or
contractor's right to compensation for legitimate work
performed on behalf of the United States.

Mr. Brooks. Thank you, General. Was GAO asked for its recom-
mendations before the OMB issued the proposed changes in cost
principles?

Mr. Bowsher. No, we were not.

Mr. Brooks. Has GAO reviewed the inappropriate use of Federal
funds for lobbying by grantees and contractors?

Mr. Bowsher. Yes, we have.

Mr. Brooks. Does GAO's work in this area provide sufficient
basis to justify the drastic change in policy that has been proposed?

Mr. Bowsher. No, it does not. We have been asked to look into
various incidents of possible improper use of Government funds for
lobbying and we have cited some incidents where we thought the
funds had been improperly used. We have never seen any volume
of such improper use that we would propose this kind of change.

Mr. Brooks. General, last Friday afternoon OMB issued a press
release suggesting that the purpose of their draft proposal was to
carry out a recommendation made by the Comptroller General.
That is you. Specifically, OMB quoted the following language from
a GAO report on the use of funds under title X of the Public
Health Service Act. They said:

Clear Federal guidance is needed both to insure that title X program funds are
not used for lobbying and to preclude unnecessary controversy over whether grant-
ees are violating Federal restrictions. The move to revise and make more specific
the cost principles applicable to all Federal grantees is the appropriate mechanism
to achieve these ends.

Did you ever intend that recommendation to result in the action
that OMB has taken?

Mr. Bowsher. No, we didn't, Mr. Chairman. What we did intend
is what some of the members of your committee and yourself have
said today to try to get some consistency in the regulations in the
executive branch — as we had cited in that report the difference be-
tween the OMB directions and HHS's regulations. But what we
were really talking about was cleaning up some cost allocation reg-
ulations, you might say, to make it clear and that is all we were
talking about, really.

Mr. Brooks. What steps other than those that have been pro-
posed by the administration could be taken to eliminate abuses of
Federal funds to pay for lobbying expenses?

Mr. Bowsher. Well, I think that the one we just talked about,
cleaning up and trying to get some consistency in what is an allow-
able cost and what isn't, would be good. We also, as you know in
that Lockheed situation, ran into a situation that is really not cov-
ered by these regulations and that is where the executive branch is
working with the private sector to carry on a massive lobbying ac-
tivity. That would have to probably be cleared up by legislation.

Mr. Brooks. One last question. Lobbying is not listed in current
OMB guidelines as an unallowable expense. If lobbying were spe-
cifically listed as unallowable, would auditors be able to determine
whether Federal funds are being diverted from legitimate activities
to political advocacy?

Mr. Bowsher. I think auditors can make those kinds of determi-
nations. Sometimes it is imprecise and sometimes the cost account-
ing systems of the various organizations are not perfect but I know
that is what some of the people at OMB were trying to do with

these regulations, was eliminate the need for some basic cost ac-
counting and for the need for auditors to check it out. But by going
the route they did, as you can see here today, they have created
greater problems and I really think the cost accounting can be
there and the auditors can check it out as they have traditionally
done. They just need a little more clarification in the guidelines.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you, Mr. Chairman.

It is nice to have you back with us again. We appreciate your tes-
timony. Is it necessary to have regulations such as the proposal re-
vision to A- 122?

Mr. Bowsher. I think some guidelines like A-122 are desirable,
yes, I do.

Mr. Horton. In a broad way how would you sketch out what is
needed?

Mr. Bowsher. Well, I think just in a broad way is some clarifica-
tion here as to what's allowable and what isn't. As we pointed out
in our title X report some of the funds were sent on to induce pay-
ment, we might say, to associations; those kinds of things could be
clarified. I think the nonprofits and the corporations in this coun-
try would tend to abide by these regulations and they could be
checked out by periodic audit. It is a very doable situation and by
and large if the regulations were revised in a commonsense and
practical manner, I think the organizations would abide by it.

Mr. Horton. I certainly agree with you that cost of political ad-
vocacy should not be financed with taxpayers' funds through
charges to Federal contracts or grants. Do you have any idea,
maybe just a sort of a rough estimate, of how much is charged ac-
tually?

Mr. Bowsher. No, we have never done a study that we could give
you a figure. We have looked at individual situations both on some
of our work that we self-initiate and some of the work that the
Congress has asked us to look at and we have reported those situa-
tions, but we have never done a complete study.

Mr. Horton. Is a complete study to find that out feasible?

Mr. Socolar. I think it would be very difficult to do a study on
the basis of which one could project throughout the whole Govern-
ment.

Mr. Horton. How widespread or how deep a problem is it?

Mr. Bowsher. We do not think it is a deep or widespread prob-
lem. In other words, we have found incidents and we have reported
those, and as a result asked for some clarification, but we have
never found huge sums of money involved that we could report to
the Congress.

Mr. Horton. In addition to your kind of studies, do you think
also that the inspectors general efforts could be helpful in this re-
spect?

Mr. Bowsher. Yes, I do.

Mr. Horton. How bad is the problem at Defense, compared with
the problem with nonprofit grantees and contractors?

Mr. Bowsher. Well, the Defense issue is somewhat different and
is not really covered by the changes in this, although these would
have an effect on the Washington offices of the major aerospace
contractors. But what we ran into in the Lockheed situation, which

you people raised here this morning, was the executive branch
working with the private sector putting forth this major lobbying
effort as you point out, costing somewhere around $500,000, and
those are the efforts that are problems as we pointed out when we
testified on the Lockheed report that we issued.

Now, these regulations really are only changing the ball game
for the private sector. They are not touching at all what the execu-
tive branch does in relation to the private sector on a situation like
Lockheed which is, I think, something that should eventually be
looked at both by the executive

Mr. Horton. Is there a need to look at that?

Mr. Bowsher. Yes there is, as we previously testified.

Mr. Horton. I think you probably were here when Mr. Wright
was testifying about other circulars. I forget the numbers, I think
one was 21 and another one related to the State and local govern-
ments. Do those circulars get into the same type of problem or the
same type of area that Circular A- 122 attempted to get into? Are
you familiar with that?

Mr. Socolar. Circular 87 gets into it somewhat in connection
with prohibiting contributions by State and local governments to
organizations that do a substantial amount of lobbying. There is
nothing in A-122 at the present time that deals with the subject. If
I might comment, our particular concern about the need for regula-
tions in this area stems from the fact that there are several gener-
al statutes on the books today and that we are often called upon on
a complaint basis to examine particular situations. Because the
laws are so general and because there aren't specific regulations
delineating what kinds of activities are reimbursable under those
laws, we have a rather difficult time drawing the line between per-
missible and impermissible types of activities. We think it would be
helpful not only in terms of going in after the fact to determine
what happened, but for the guidance of the particular grantees,
contractors, to know beforehand what kinds of costs they should
charge to their contracts and grants and what kinds they
shouldn't. With that guidance there should not be too great a prob-
lem in terms of enforcement.

Mr. Horton. I assume from what you say that it is better to pro-
ceed administratively or through regulation rather than statute.

Mr. Bowsher. We think that is true, Congressman, on this issue
of allowable costs and unallowable costs. We do think that on Lock-
heed, that you would have to, as Milt has pointed out, go back and
look at some of the statutes which tend to conflict.

Mr. Horton. Thank you, Mr. Chairman.

Mr. Brooks. Thank you, Mr. Horton. I recognize the gentleman,
Mr. Clinger.

Mr. Clinger. Thank you very much, Mr. Chairman.

Mr. Bowsher, on page 6 of your statement you suggest that there
may be some rare circumstances where it might be appropriate to
use tax dollars to pay for political advocacy. Could you elaborate on
that?

Mr. Bowsher. Yes. We only put that in because we didn't feel we
could exclude everything and we think it is very rare. One case
might be a legal defense corporation where they have a case where
in defending or representing their client they would have to be ad-

vocating some position, feeling they would have to come down and
talk to somebody here in either the executive branch or in the leg-
islative branch and it would be appropriate and probably should
not be excluded. But we really think those are very rare circum-
stances.

Mr. Clinger. It is very difficult to define, it would seem to
me

Mr. Bowsher. Yes, sir.

Mr. Clinger. How do you write a regulation that could take into
account those gray areas?

Mr. Socolar. In point of fact, the legislation covering the Legal
Services Corporation specifically provides for that kind of political
advocacy. So long as there is a client in whose behalf that kind of
activity is required, the act makes very clear that that would be all
right.

Mr. Clinger. I think we all agree that the definition that is con-
tained in the withdrawn A- 122 with regard to political advocacy is
not a good one and that there need to be some fairly dramatic
changes in that definition.

Have you given any thought to what changes might be made
that would make political advocacy a more workable concept?

Mr. Bowsher. Well, what we would like to do, Mr. Congressman,
is work with the people at OMB and with your committee, and
anyone else in the Congress on that rather than give you a quick
answer here today. We would like to work with them on that in
the days and weeks ahead.

Mr. Clinger. Well, perhaps a more specific question. OMB has
hinted that it might be considering new language that exempts
standard marketing activities from the definition of political advo-
cacy.

Would you have any views on that proposed change?

Mr. Socolar. I think that the posture that we would start from
is that any definition of political advocacy would have to assure
that legitimate activities, legitimate making of information availa-
ble would not be cut out by whatever that definition might be.
Under the laws as they are on the books now, for example, because
they are so general we have taken the view that one really has to
step into an area of egregious conduct before we would, as a matter
of law, conclude that those statutes have been violated. I think the
same kind of care would need to be taken with regard to any defi-
nition of political advocacy that would be put forward in a regula-
tion. Our main objection, if you will, to the issuance and to the con-
cept being propounded by OMB is on this issue of nonallocatability
of permissible and impermissible costs — that once an individual,
for example, engages in political advocacy, no part of his salary
may be charged to a grant or a contract irrespective of whatever
his contribution to that grant or contract might be. We think that
is an impermissible penalty.

Mr. Clinger. I think clearly the most egregious provision of this
regulation — I think the most offensive to the most number of
people and with regard to that concept — is that of disallowing the
full salary cost of any part of an individual's activity engaged in
political advocacy. How would you see that kind of principle apply-

ing to equipment, for example? If any portion of Federal grant
money is used to purchase a telephone or a Xerox machine

Mr. Bowsher. We would have the same problem.

Mr. Clinger. That equipment be used for political activities?

Mr. Bowsher. Yes. In other words, we just don't think you
should wipe it all out at least on that one action

Mr. Clinger. Yes. You get into very, very difficult areas. You
buy a bus to transport people and they are transported to some po-
litical event, do you disallow the whole cost? That sort of thing.

OK. Well, I think that clarifies my question. Thank you, Mr.
Chairman.

Mr. Brooks. Thank you both very much. I appreciate your
coming down, General.

Mr. Bowsher. Thank you very much.

Mr. Brooks. This morning we have from the Government Oper-
ations Committee a colleague, Congressman Barney Frank, from
the Fourth District of Massachusetts. He is serving his second term
in Congress after a distinguished career in the Massachusetts Leg-
islature. He has a BA and a JD from Harvard University, has been
a teaching fellow in government at Harvard, and was a graduate
student in political science.

At the beginning of this Congress, he was elected chairman of
our Manpower and Housing Subcommittee and we are expecting to
see the vigorous and diligent work from him as a subcommittee
chairman that has characterized his entire political career.

STATEMENT OF HON. BARNEY FRANK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. Frank. Thank you Mr. Chairman. I will be very brief and I
appreciate the opportunity because there are a number of people
here who can document what is happening. I want to express my
appreciation to you for having this hearing. Obviously there has
been a great deal of unhappiness about this proposal and it is very
important that you have provided this channel for it to be voiced.

What bothers me in addition to the specifics about this is the
basic thrust of it. In other words, I think it is a bad idea being
badly executed. Improving the execution will not cure the fact that
it is a bad idea.

What we fundamentally have are people in the executive branch
who want the American people to leave them alone. I was struck
on reading Mr. Wright's testimony that apparently one of his modi-
fications is going to be that it will be all right for people to talk to
the executive branch but not to talk to Congress because they don't
want interference with what they are planning to do.

I am offended by the whole notion that seems to me to be moti-
vating this proposal that there is something improper about citi-
zens speaking out about public policy and I think that really is the
motivation. I think we have people in the executive branch who
want to make fundamental changes and they don't want to be
bothered by a lot of people who are going to tell us what the effects
of those changes are. I do not understand how it could have oc-
curred to them that it was appropriate for the Federal Government

to say to the American people you may not speak out on these
issues.

It is particularly ironic that an administration which has
stressed, correctly, that tax dollars are not the property of the Fed-
eral Government but are in fact something which belongs to the
people are now acting as if by providing funds for various legally
sanctioned activities, they are doing people an enormous favor for
which the people must pay by shutting up.

We are not talking about a Federal Government dipping into the
pockets of its own appointees and going out and distributing lar-
gess to which people should be quietly grateful. We are talking
about legally sanctioned activities whereby the Congress has told
the executive branch various activities should be funded. To say
that the recipients of those funds who are carrying out sanctioned
public purposes are somehow behaving improperly if they talk
about how they could be better used, seems to me to be bizarre.

I would also add that if they were going to enforce this, I would
have some questions in particular about an inconsistency. It does
seem to me that John was right when he said that Government
ought to have laws of a democracy which apply not just to the pri-
vate citizens, but to the people in Government themselves.

Now, I don't know exactly who pays what at the White House. I
do know there are people at the White House, Mr. Nofziger and
now Mr. Rollins, whose job does not seem to me to be by any
stretch of the imagination governmental. They are over there in
the White House and maybe they are paying for those phones pri-
vately and the Xerox machines privately, but it was my undertand-
ing that they have been in the White House not just in this admin-
istration, but in prior administrations, people whose job it is to get
political.

Now, I have no particular objection to the fact that Mr. Rollins
spent a certain part of his time on the Government payroll figuring
out how to defeat me for reelection; if I were he, I would have done
the same thing. What I object to is his administration deciding that
while it was perfectly legitimate for him and Mr. Nofziger and
their staffs to be paid wholly out of Government funds on Govern-
ment property over there in the Executive Office Building, to be
engaged in political activity, but that it is somehow improper for
citizens who are going about their legal business to do the same
thing.

So I would hope that this circular is not only withdrawn, but is
sent back to whatever nook and cranny it came from and I think
what we have, Mr. Chairman, is very simply an effort by this ad-
ministration to appease some of its particular rightwing constitu-
ents by defunding the left. The fact that they have to get Lockheed,
Boeing and a few others, I think, is only a minor inconvenience be-
cause they think they can figure out some ways around it. It is not
an appropriate response for the Federal Government to act as if it
is the executive branch's money, that the recipients ought to be
seen and not heard. The whole thrust of this is to interfere, it
seems to me, with the kind of vigorous debate that I would have
thought we would have been proud of in a democracy.

I congratulate you for holding a hearing and I am glad that they
have withdrawn the first attempt and I hope they will do the sensi-

ble thing and stop wasting all of our time and just let us all go
about our business.

The final thing I would say is that there is a disturbing trend
here that we see because people admit there are rules and regula-
tions on the books. This is not simply an effort to make them uni-
form. What they are saying is it is too hard to enforce the specific
rules so let's punish everybody. We have seen too much of that as a
governmental response. It is easy to say there have been problems
in the student loan program; let's cut off whole groups of people.
There have been problems in this program or that program, let's
cut off whole groups of people. Instead of doing what they ought to
be doing, which is enforcing the existing rules on the books, they
say that is too hard, let's just cut off everybody. That kind of mass
punishment has bothered me since I was in the second grade and
the teacher punished the whole class because one kid yelled when
she wasn't looking. I don't think it is any more appropriate now
and I think from the standpoint of the first amendment and a re-
spect for the democratic process, they ought to withdraw the whole
thing.

Thank you, Mr. Chairman.

Mr. Brooks. Thank you very much, Mr. Frank.

Our next witness is Brian O'Connell, president of the Independ-
ent Sector. Previously, he served as president of the National Coun-
cil on Philanthropy and executive director of the Coalition of Na-
tional Voluntary Organizations. For 12 years Mr. O'Connell was
national director of the Mental Health Association. Prior to that he
spent 12 years with the American Heart Association.

He is a graduate of Tufts, did his graduate work at the Maxwell
School of Citizenship and Public Administration at Syracuse.

He is obviously a man who has spent his lifetime trying to help
others. We are delighted to have you here, Mr. O'Connell.

STATEMENT OF BRIAN O'CONNELL, PRESIDENT, INDEPENDENT

SECTOR

Mr. O'Connell. Thank you, Mr. Chairman.

I confess that the testimony by the Comptroller General was so
revealing that I momentarily don't have complete control. I wish I
did and I will explain that if you will bear with me.

First of all, I would like to be able to submit the entire testimony
for the record.

Mr. Brooks. Without objection. The gentleman will proceed.

Mr. O'Connell. I've spent 30 years in this voluntary philan-
thropic sector and have never known so total an impugning of the
integrity of all of its institutions. For 3 weeks I have been trying to
find out what the facts are and where in the world this rampant
disregard for the law exists. I have not seen it in those 30 years. I
have been told repeatedly by the Office of Management and Budget
that the excesses are egregious and that when the GAO revealed
its report, I would be ashamed, and that was the word used, I
would be ashamed that I try to represent voluntary and philan-
thropic institutions. Repeatedly I have tried to get that report and
GAO said they knew of no such report, OMB said it may not have
been released yet, "but wait until you see it, you will be embar-

rassed, chagrined; you will go back with your tail between your
legs."

I finally got ahold of the report that was referred to twice earlier
this morning. It does not deal with this entire sector. This so-called
scathing report is an innocuous report dealing only with family
planning and as the Comptroller General himself has just revealed,
even when they looked at that narrow, certainly politically active
segment, they found very few problems.

So here we have a campaign that has been now waged for a
month that says this sector that I care passionately about, and you
do, sir, has been in rampant disregard of the law. In today's New
York Times, Mr. Horowitz, who is still speaking out, says "The
budget office moved for tighter regulations because there were
rampant abuses of existing rules against Federal money for lobby-
ing activities."

This small innocuous GAO report is the basis of all of his state-
ments and the Comptroller General who issued this report just said
to you twice, that as far as he is concerned, they do not believe
that significant excesses exist. Now, I think it is absolutely shame-
ful that this or any administration should willy-nilly float these
balloons as they were described, that so totally undermine the
public confidence in a sector that the President and all of us care
terribly about.

I have, with Barber Conable and others, attempted to work with
OMB to say "What adjustments can we make in the current ac-
counting system?" and have been told that GAO and all who have
looked at it said that it is totally impossible to take the current ac-
counting and auditing mechanisms and make them work. We have
just heard here for the first time, in answer to Mr. Horton's ques-
tion, in answer also to Mr. dinger's points, that the current ac-
counting and auditing mechanisms can work and do work. We
have also heard that if there are egregious violations of the law,
whether it is Lockheed or any voluntary group, the administration,
the Government should move steadfastly into those abuses. I
object, as Mr. Frank clearly does, to this across-the-board attack on
the integrity of volunteers, of givers, voluntary institutions and
philanthropic groups. They are not simply talking about organiza-
tions that one or more of us might have some questions about in
terms of honest disagreements about their program goals. They are
talking about the Foreign Policy Association on issues of disarm-
ament, the National Wildlife Federation on endangered species and
lands, the American Enterprise Institute on its health care studies,
the American Red Cross on disaster relief, Goodwill Industries on
the sheltered workshops, the Baptist Church on homes of the aged,
Jewish Federations on social services, the American Museum Asso-
ciation on national endowment of the arts, Catholic Charities on
refugees and the homeless.

Almost every hospital, church denomination, social service
agency, research institute, historical society, is impacted heavily by
these proposed changes.

I am told and I am not a lawyer so I wanted to be absolutely sure
of my grounds before speaking here or elsewhere, I am told by con-
stitutional lawyers that the proposals are clearly unconstitutional
on two grounds: That OMB has gone beyond its statutory limits in

making law through regulations rather than clarifying law, and
that on first amendment rights it is clearly unconstitutional.

I will further say that to Mr. Wright's testimony and I respect
him as an individual, I am outraged that on the basis of what I
have now learned about the GAO's report and the GAO's opinion
about how this should be dealt with, that they want to proceed and
in just 2 weeks come forward with revised proposals. I think during
that period they will continue to give the impression that volun-
tary institutions are in violation of the law, and they will continue
to say there are rampant violations of the law by organizations. I
think it is all the more argument why they should withdraw.

I think it is important to your understanding of my attempt to
look at this in a balanced way, that my organization has for the
past 18 months been trying to back off so-called liberal organiza-
tions that want to get at the Moral Majority and other conserv-
ative electronic evangelical churches because these liberal groups
feel that the churches have had undue influence in the electoral
process.

I have been attempting to say there are enough laws on the
books now that we don't need more laws to protect us from the left
or the right. Most important is the constitutional protections of
freedoms of speech and assembly. Let's not start closing in on one
another because we don't like what Planned Parenthood does or we
don't like what the Moral Majority does.

I have also worked hard with this administration for 2 years on
its private sector initiatives project. My timesheet shows that
during the first year of that activity I spent almost a third of my
time working with the President and the administration applaud-
ing, and encouraging their attempts to strengthen private sector
initiatives, voluntary activity, private giving. I have been facing
many organizations who were skeptical and cynical. I continue to
feel that it is important for all of us who care about voluntary ini-
tiative to work with any President who wants to encourage that
kind of behavior but I do say it is time that this President stepped
in to strengthen the organizations, that are the vehicles through
which the country's voluntary impulse has always been pursued.

Thank you.

[Mr. O'Connell's prepared statement follows:]

Testimony of Brian O'Connell Before the House Subcommittee on
Legislation and National Security

I am Brian O'Connell, president of INDEPENDENT SECTOR, an organization of
466 national foundations, voluntary organizations, and business corporations
that have significant contributions programs. (The list is attached.) These
groups have joined together in INDEPENDENT SECTOR to strengthen our national
tradition of giving, volunteering and not-for-profit initiative. The organi-
zations are as different as American Heart Association, United Negro College
Fund, The Rockefeller Foundation, National Council of Churches, Shell Oil
Companies Foundation, American Association of Museums, The General Mills
Foundation, National Council of La Raza, Planned Parenthood and Catholic
Charities. The common denominator among this diverse mix is their shared
determination that people will have greater opportunity to influence their
own lives and the kind of society in which they live.

For two years I have applauded and worked with President Reagan's efforts to
strengthen the country's voluntary impulse. Simultaneously I have criticized
the Administration's budget cuts that disproportionately impact voluntary
organizations and the people they serve even while the Administration has
called on these groups to substitute for reduced government services.

At the heart of that dilemma was the Administration's failure to recognize
that for twenty-five years the Federal government has preferred to fulfill
many of its responsibilities by contracting with voluntary organizations
rather than build its own hospitals, day care centers, and homes for the aged.
Today one-third of the income of the voluntary sector comes from government
grants, contracts and payments for service. (The other two-thirds comes in

20-644 0-83 6

approximately equal proportions from contributions and user fees such as
tuition.) Within this financial reality, it is not practical or fair to cut
the one-third share of support for sheltered workshops and job training
programs run by voluntary organizations, and then leave the impression that
these voluntary groups will absorb cutbacks in government-run programs.
This awful crunch is compounded by the human response of governmental
bureaus to pass along to voluntary organizations the larger proportion
of mandated cuts. It's much easier to reduce the line item for external
contracts than to fire people around you.

In the face of these disproportionate cuts and unrealistic expectations,
many leaders on the voluntary side have become skeptical, if not cynical,
about the President's interest.

Against this uneasy backdrop, the Administration has now proposed a fuller
change in relationships that would substantially reduce the capacity of
voluntary organizations to be of public service — and with this stroke they
have changed the skepticism and cynicism to bewilderment and hostility. The
Administrations's new proposals (0MB Circular A-122, January 24, 1983) will
mean that a voluntary organization that receives any government money will
lose its right to influence that government. Simultaneously they propose
to greatly broaden the list of prohibited activities to include any contacts
with legislatures, elected officials, administrators, regulatory boards and
courts. The purpose of these proposals is to come up with a new way to be sure
that tax dollars are not used to finance political activity which is already
illegal, but their plan is frightening.

The Administration argues that the only way an organization should retain
its right to provide services, and also engage in advocacy, is by establishing
separate offices, staff and equipment for each. For example (and the Office
of Management and Budget has acknowledged to me that this example is valid),
a voluntary organization that receives only 5 percent if its total budget from
a government program grant and devotes only 5 percent of its time to advocacy
efforts would not be allowed to have its staff director, office or equipment
used for both parts of the program, even though no part of the government
grant is assigned to advocacy.

Here are three examples of how sweeping and stifling these proposals are.

1. For the small voluntary organization -- and these are the majority --
the regulations are totally unworkable. The proposed regulations would
require that a current one person organization would have to have two separate
persons and offices or lose either the federal grant or its advocacy rights.
Many small and mid-sized voluntary organizations accept government funding
at the urgent behest of government, which has seen that these voluntary
groups are already working with people about whom the government has become
concerned and because the government does not want to expand its own direct
operations. It is unreasonable and shortsighted that an organization that
agrees to help government train handicapped workers cannot use any proportion
of the same staff, office or equipment to perform those services if those

same people or facilities are even minimally engaged -- with contributed
income -- in trying to work with government to improve the overall system
of services for the handicapped. It is simply not pracitical to expect that
small organizations can divide and fund both functions.

2. Even in a larger organization, it is not possible fo»* the
executive director to divorce himself or herself from one side of the
operation. If he or she is the chief staff officer, then he or she is
responsible for all the important pursuits of that organization. Even if

they could afford two separate staffs and offices, executive directors wouldn't
be worth their salt if in any significant proportion of their activities they
have to disqualify themselves.

When the government comes to the voluntary organization requesting help with
certain public services, or when the voluntary organization seeks to perform
services, the government usually requires that a proportion of the executive's
time be assigned to the project. This is a measure of assurance that the
project is viewed as that important and will get that level of attention. It
is utterly unfair and unrealistic to require that the executive director dis-
qualify himself or herself on either the direct service or the advocacy side.

During the past year, President Reagan has quite appropriately applauded the
New York City Partnership. I wonder if he read the New York Times story Friday,
February 4, in which it was pointed out that the Partnership's income includes
"millions of dollars in federal money" and, separately, that "its lobbying
has been effective". The story also indicates that its first full-time executive
director, Frank Macchiarola, will soon be on board. Can the Administration
really believe that Mr. Macchiarola will not be involved on all sides of the
program?

3. Most voluntary organizations cannot possibly be on just one side or
the other. An Administration representative shouted at me that it is wrong

for an organization that delivers food to the poor to also try to influence
the food stamp program. Taking it to a hopefully less charged example, I
pointed out that in the past five or six years the government has come to
voluntary groups with an almost desperate plea for help in dealing with the
deinstitutionalization of mental hospital patients who have been put on the
street without any arrangements for their health, employment, housing, financial
and other pressing needs. Many voluntary mental health facilities have
responded beautifully. It is inconceivable that the Administration should
require that those who run these halfway houses or other community services
must not work with government to help develop the comprehensive mental health
services that in the end will provide for both early discharge and orderly
community follow through.

A good agency that works closely with human beings is often in the best
position to work constructively with government to develop the laws, regulations
and programs appropriate for the people that both sides care about. It is
naive in the extreme for the Administration to assume that a voluntary organi-
zation that cares deeply about housing, jobs, health, museums, or refugees
won't have to be on both sides of the fence, or that the executive must
decide which side he or she will guarantee to stay away from. It would have
been unconscionable during the refugee crisis for the government to say to
the Catholic Relief Agency, "For God's sake, help us solve this problem, but
because we're going to underwrite part of your help, don't you dare use any
of your contributed income to try to influence how this program is conceived,
legislated, organized or operated."

Voluntary organizations are already prohibited from using any part of a grant
or contract for political or lobbying activities. To retain their tax exempt

status, they also cannot use any contributed funds for political activity
and they must observe very strict limitations on advocacy efforts. These
are monitored by accounting and auditing systems which all concerned are
constantly struggling to improve. These systems are still imperfect, but
it is better to struggle to improve them than to impose a crippling simplicity
that would deny government the combination of services and opinions it needs.
The Administrations' s proposals are not only unworkable, but fundamentally
wrong.

It's time the President stepped in to strengthen the organizations that are
the vehicles through which the country's voluntary impulse is pursued.

INDEPENDENT SECTOR VOTING MEMBERS
(As of March 1 , 1983)

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Atlantic Richfield Foundation
Avon Products, Inc.
Mary Reynolds Babcock Foundation
BankAmerica Foundation
Bankers Trust Company
Benton Foundation
Bethlehem Steel Corporation
Bird Companies Charitable

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Blue Cross & Blue Shield

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B'nai B'rith International
Borden Foundation
Boy Scouts of America
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Bristol-Myers Company
Brookings Institution
Burlington Northern Foundation
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California Community Foundation
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Cancer Care, Inc. and The

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Carnegie Corporation of New York
Carter Hawley Hale Stores, Inc.
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Caterpillar Foundation
CBS Inc.

Center for Citizenship Education
Center for Corporate Public

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Center for Responsive Governance
Champion International
Chase Manhattan Bank, N.A.
Chemical Bank
Chevron U.S.A., Inc.
Children's Aid International

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CIGNA Corporation
Citibank. N.A.
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Cleveland Foundation
Clorox Company Foundation
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Coca-Cola Company
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College Board

Colonial Williamsburg Foundation
Colt Industries Inc.
Columbus Foundation
Committee for Corporate Support

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Committee for the Study of

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Committee to Combat Huntington's

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Commonwealth Fund
Conoco, Inc.
Conservation Foundation
Consolidated Natural Gas

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Consortium for International

Citizen Exchange
Continental Bank Foundation
Continental Group Foundation,

Inc .
Corning Glass Works Foundation
Coro Foundation
Corporation for Enterprise

Development
Council for the Advancement and

Support of Education
Council for the Advancement of

Citizenship
Council for American Private

Education
Council for Financial Aid to

Education
Council of Better Business

Bureaus/Philanthropic Advisory

Service Division
Council of Engineering and

Scientific Society Executives
Council of Independent Colleges
Council of Jewish Federations
Council on Foundations
Council on International and

Public Affairs
CPC International, Inc.

Zrown Zellerbach Foundation

;rum and Forster Foundation

Suramins Engine Company, Inc.

Tharles A. Dana Foundation, Inc.

)art 4 Kraft, Inc.

)ayton Hudson Corporation

Jeere and Company

Deloitte Haskins 4 Sells

jeraldine R. Dodge Foundation

3aylord Donnelley Foundation

Dresser Industries, Inc.

Drown Foundation

Duke Endowment

E.I. Du Pont de Nemours and

Company
Durfee Foundation
Dyson Foundation
Eastman Kodak Company
Eaton Corporation
Educational Testing Service
Emerson Electric Company
Energy Conservation Coalition
Enterprise Foundation
Environmental Law Institute
Epilepsy Foundation of America
Equitable Life Assurance Society

of the United States
Esoark, Inc. Foundation
Evangelical Council for Financial

Accountability
Exxon Corporation
Family Service Association of

America
Federated Department Stores, Inc.

Foundation
Fireman's Fund Insurance Company

Foundation
Fluor Corporation
Ford Foundation
Ford Motor Company Fund
Foremost-McKesson Foundation,

Inc .
Foundation Center
Foundation for Children with

Learning Disabilities
Foundation for Teaching Economics
Fre3h Air Fund

Future Homemakers of America
Gannett Foundation
General Conference of Seventh-day

Adventists
General Electric Company
General Mills Foundation
General Motors Foundation

General Telephone 4 Electronics
Girl Scouts of the U.S.A.
Girls Clubs of America, Inc.
Morris Goldseker Foundation

of Maryland , Inc .
Goodwill Industries of America
Grace Foundation, Inc.
William T. Grant Foundation
Grotto Foundation
Gulf Oil Corporation
Gulf ♦ Western Foundation
George Gund Foundation
Miriam and Peter Haas Fund
Walter and Elise Haas Fund
Hallmark Cards, Inc.
Hawaiian Foundation
Edward W. Hazen Foundation
H.J. Heinz Company Foundation
Heublein Foundation, Inc.
William and Flora Hewlett

Foundation
Hewlett-Packard Company

Foundation
Hof fmann-LaRoche Foundation
Hogg Foundation for Mental Health
Hospital Research and Educational

Trust
Hunt Foundation
IBM Corporation
Independent College Funds of

America, Inc.
Independent Research Libraries

Association
Inland Steel-Ryerson Foundation,

Inc .
Institute for Journalism

Education
International Christian Youth

Exchange
International Service Agencies
International Telephone and

Telegraph
International Women's Health

Coalition
Interracial Council for Business

Opportunity
James Irvine Foundation
Irving Trust Company
Ittleson Foundation
Jerome Foundation
JWB

Robert Wood Johnson Foundation
Johnson 4 Johnson
Joint Action in Community Service

Joint Center for Political

Studies
Jostens Foundation, Inc.
Joyce Foundation

Henry J. Kaiser Family Foundation
W.K. Kellogg Foundation
Charles F. Kettering Foundation
Esther A. and Joseph Klingenstein

Fund , Inc .
Kresge Foundation
Samuel H. Kress Foundation
Albert Kunstadter Family

Foundation
LEAD Program in Business, Inc.
League of Women Voters Education

Fund
Leukemia Society of America, Inc.
Ell Lilly and Company
Lilly Endowment, Inc.
Henry Luce Foundation
Lutheran Brotherhood Foundation
Lutheran Council in the U.S.A.
Lutheran Resources Commission -

Washington
Lyndhurst Foundation
J. Roderick MacArthur Foundation
John D. and Catherine T.

MacArthur Foundation
March of Dimes Birth Defects

Foundation
John and Mary R. Markle

Foundation
Hay Department Stores Company
Louis B. Mayer Foundation
Robert R. McCormick Charitable

Trust
McDonald's Corporation
McDonnell Douglas Corporation
McGraw-Hill Foundation
Mellon Bank Foundation
Merck Company Foundation
Joyce Mertz-Gllmore Foundation
Metropolitan Life Foundation
Mexican-American Legal Defense

and Educational Fund
Eugene and Agnes E. Meyer

Foundation
John Milton Society for the Blind
Minneapolis Foundation
Mobil Oil Corporation
Monsanto Company
Philip Morris, Inc.
Charles Stewart Mott Foundation
Stewart R. Mott Charitable Trust

t ional
s
rt

munity

ines:
Inc ,
Cour

Ms. Foundation for Women
Mutual Benefit Life
NAACP Legal Defense and

Educational Fund, Inc.
National Academy of Public

Administration
National Alliance for the

Mentally 111
National Alliance for Op

Parenthood
National Alliance of Bus
National ALS Foundation,
National American Indian

Judges Association
National Assembly of Com

Arts Agencies
National Assembly of National

Voluntary Health and Social

Welfare Organizations, Inc.
National Assembly of State Arts

Agencies
National Association for

Bilingual Education
National Association for Hispanic

Elderly
National Association for Hospital

Development
National Association for Visually

Handicapped
National Association of

Independent Colleges and

Universities
National Association of

Independent Schools
National Association of Public

Television Stations
National Association of Schools

of Art and Design
National Association of Schools

of Music
National Association of Social

Workers
National Association on Drug

Abuse Problems
National Audubon Society
National Black Media Coalition
National Black Programming

Consortium , Inc .
National Board of Young Men's

Christian Associations
National Board of the Young

Women's Christian Association

of the U.S.A.
National Catholic Development

Conference , Inc .

National Center for a Barrier

Free Environment
National Coalition of Hispanic

Mental Health and Human

Services Organizations

(COSSHHO)
National Committee for Citizens

in Education
National Committee for the

Prevention of Child Abuse
National Concilio of America
National Conference of Catholic

Charities
National Congress for Economic

Development
National Congress of American

Indians
National Consumers League, Inc.
National Corporate Fund for Dance
National Council for Children and

Television
National Council of La Raza
National Council of the Churches

of Christ in the U.S.A.
National Council of Women of the

United States, Inc.
National Council on Alcoholism
National Easter Seal Society,

Inc .
National Economic Development and

Law Center
National Executive Service

Corps .
National Family Planning and

Reproductive Health

Association, Inc.
National Federation of State

Humanities Councils
National 4-H Council
National Fund for Medical

Education
National Future Farmers of

America , Inc .
National Health Council, Inc.
National Hispanic Scholarship

Fund
National Hospice Organization
National Image, Inc.
National Indian Youth Council
National Information Bureau, Inc.
National Legal Aid and Defender

Association
National Medical Fellowships,

Inc .

National Mental Health

Association
National Opera Institute
National Park Foundation
National Park3 and Conservation

Association
National Public Radio
National Puerto Rican Coalition
National Puerto Rican Forum, Inc.
National Scholarship Service and

Fund for Negro Students, Inc.
National School Volunteer

Program, Inc.
National Society for Autistic

Children
National Society of Fund Raising

Executives
National Society to Prevent

Bl i ndness
National Tribal Chairmen's

Association
National Trust for Historic

Preservation
National Urban Coalition
National Urban Fellows, Inc.
National Urban League, Inc.
National Wildlife Federation
National Youth Work Alliance,

Inc.
Native American Rights Fund
Natomas Company
Nature Conservancy
Neighborhood Coalition
New England Mutual Life Insurance

Company
New World Foundation
New York Community Trust
New York Life Foundation
New York Time3 Company Foundation

Inc .
NL Industries Foundation, Inc.
Nordson Foundation
Northwest Area Foundation
NOW Legal Defense and Education

Fund
Older Women's League
Olin Corporation
Opera America
Organization of Chinese American

Women
Organization of Chinese Americans
Owens-Illinois, Inc.
Oxfara America, Inc.
David and Lucile Packard

Foundation

Parents Anonymous
Parents Without Partners
Partners for Livable Places
J.C. Penney Company, Inc.
People-to-People Health

Foundation, Inc. (Project HOPE)
Pepsico Foundation, Inc.
Permanent Charities Committee of

the Entertainment Industries
Permanent Charity Fund of Boston
Petro-Lewis Corporation
Pfizer Foundation, Inc.
Phillips Petroleum Company
Piton Foundation
Planned Parenthood Federation of

America, Inc.
Polaroid Foundation, Inc.
Population Crisis Committee/

Draper Fund
Population Resource Center
Premier Industrial Foundation
Private Agencies in International

Development
Procter and Gamble Fund
Project Orbis, Inc.
Prudential Foundation
Puerto Rican Legal Defense 4

Education Fund, Inc.
RCA Corporation

Reader's Digest Association, Inc.
Reading is Fundamental, Inc.
Reinberger Foundation
Republic Steel Corporation
Charles H. Revson Foundation
R.J. Reynolds Industries, Inc.
Rockefeller Brothers Fund
Rockefeller Family Fund
Rockefeller Foundation
Rockwell International

Corporation Trust
Rosenberg Foundation
Samuel Rubin Foundation
Safeco Insurance Companies
Russell Sage Foundation
Saint Paul Foundation
Salvation Army
San Francisco Foundation
Save the Children
Schering-Plough Corporation
Dr. Scholl Foundation
Sears, Roebuck and Co.
Shell Companies Foundation, Inc.
Sherwin-Williams Company
Lois and Samuel Silberman Fund
Alfred P. Sloan Foundation
Spencer Foundation
Spring Hill Center
Standard Oil Company (Ohio)
W. Clement and Jessie V. Stone

Foundation
Levi Strauss Foundation
Student Conservation Association,
Inc .

Sun Company , Inc .
Support Center
Syntex (U.S.A.), Inc.
Taconlc Foundation, Inc.
Tandy Corporation
Teachers Insurance and Annuity
Association of America/College
Retirement Equities Fund
(TIAA-CREF)
Telecommunications Cooperative

Network
Tenneco Inc.
Texaco Inc.
Textron, Inc.
3M Company
Time Inc.

Times Mirror Foundation
Tosco Corporation
Transamerica Corporation
Travelers Insurance Companies
Trebor Foundation
Trilateral Commission
Trout Unlimited
Trust for Public Land
TRW, Inc.

Union Carbide Corporation
Union Pacific Foundation
United Jewish Appeal
United Negro College Fund
United Parcel Service of

America, Inc.
United States Catholic Conference

United States Committee for
UNICEF

United States Olympic Committee

United States Steel Foundation,
Inc .

United Way of America

Urban Institute

Urban Investment and Development
Company

van Ameringen Foundation

VOLUNTEER: The National Center
for Citizen Involvement

Volunteers of America

Wain Foundation

Izaak Walton League of America

Warner Communications, Inc.

Eloise and Richard Webber
Foundation

Weingart Foundation

Westinghouse Electric Corporation

Weyerhaeuser Foundation

Women and Foundations/Corporate
Philanthropy

Women in Community Service, Inc.

Women's Action Alliance, Inc.

Women's Sports Foundation

World Crafts Council

World Neighbors

Xerox Corporation

Mr. Brooks. I want to thank you very much for an excellent
statement. I read your statement last night and I thought it was
good. I also think your statement here today was exceptional.

I have just one question for you.

How extensively would these proposed revisions affect nonprofit
organizations?

Mr. O'Connell. So extensive as to be devastating, that it would
affect groups as research oriented, and conservatively identified as
the American Enterprise Institute, it would affect the American
Red Cross, as it attempts to deal with the Government on disaster
relief, it would affect the Baptist Church as it struggles with homes
for the aged. It would impact so many voluntary institutions and
the people they serve as to be an unconscionable encroachment on
the efforts of both Government and private organizations to be of
public service.

Mr. Brooks. Thank you. Any questions; Mr. Horton?

Mr. Horton. I don't have any questions, thank you.

Mr. Brooks. Mr. Clinger.

Mr. Clinger. Thank you, Mr. Chairman. I just have one ques-
tion. What do you feel about registered lobbyists? Should any por-
tion of their funds in your view be permitted to be paid by Federal
funds?

Mr. O'Connell. Not unless the grant under which they are oper-
ating specifically makes that permission, that is, we are not argu-
ing that Government funds should be used for lobbying. We do
argue strongly that advocacy goes far beyond lobbying and that
most voluntary institutions with their contributed money should be
allowed to represent citizen concerns and clearly our whole demo-
cratic process is to give people access, to have some empowerment,
to have some influence. If that is through a paid lobbyist, and they
want to do that through their contributed money, that is a legiti-
mate expense, but I would agree that it should not be part of the
grant or contract.

Mr. Clinger. Thank you.

Mr. Brooks. Thank you again, sir, for your time and patience.

Our next witness this morning is Mildred H. Shanley, of Brook-
lyn, N.Y., representing the National Conference of Catholic Chari-
ties. She is a graduate of St. John's Law School in Brooklyn, and
has worked for Catholic Charities for 22 years.

She is chairman of the National Conference of Catholic Chari-
ties' Legislative Committee, a member of the American Bar Associ-
ation's Family Law Section, a member of the Catholic Lawyers
Group in Brooklyn and in Queens and serves on the board of a
number of local volunteer organizations.

Ms. Shanley, we are delighted to have you here and you may
summarize your statement, if you see fit.

STATEMENT OF MILDRED SHANLEY, STAFF COUNSEL, CATHOLIC
CHARITIES OF THE DIOCESE OF BROOKLYN

Ms. Shanley. Thank you very much. We did submit a written
statement which we would like included in the record, if that's pos-
sible.

Mr. Brooks. Without objection, it will be done, and thank you, it
is a good one.

Ms. Shanley. Thank you. We enjoy the freedom of testifying
today on OMB Circular A-122 as we have enjoyed in the past
bringing various concerns before Congress for their consideration.
We seriously object that this circular could curtail such opportuni-
ties in the future. We fully concur that Federal funds should not be
used to influence legislation or to engage in advocacy contrary to
the legislative intent of authorizing legislation, and I think we
have an example in the Older Americans Act where the act itself
encourages client representation and advocacy for entitlements of
the seniors.

But even beyond this, we do engage in advocacy often on the
State level in terms of securing laws which are faithful to the
congressional intent of Federal enactments. And I point out as an
example being sure that COLA increases in the supplemental secu-
rity income benefits be passed through to recipients in a State like
New York, rather than be used to write off supplemental State
payments which are made. We also engage in advocacy on the Fed-
eral level, and most recently we were very involved in the terms
and conditions that were contained in the Child Welfare and Adop-
tion Subsidy Act. The purpose was to try to form Federal policies
so as to encourage State practices which fall to the best interests of
children.

We have also engaged in testimony on the Social Security Act,
on the food stamp program, on the fodd commodities bill, and over
the years on the various forms which the welfare programs have
taken. We engage in these activities without any improper use of
Federal funds and in conformity with IRS regulations governing
political or partisan activity and substantial legislative restrictions.
We do not engage in elective politics and we have conformed with
IRS regulations on voter education so as not to indirectly influence
the elective process. Our legislative activities are clearly within the
IRS stostantiality limitations.

This proposal is most objectionable to us in that it restricts the
use of our own property and our. own funding to avoid what may
appear to some as Federal support for particular positions in public
debate. We find this to be an unreasonable limitation and one of
questionable constitutionality. We raise this clearly in terms of our
own protected freedom of speech and right to petition and also in
terms of an unjust and unreasonable control on the use of private
property.

We are unaware of any instances of improper use of Federal
funds for political activities in the nonprofit sector. If in fact there
are such inappropriate uses, we would be glad to cooperate in any
reforms growing out of such abuse.

There is overreaching, however, when the declared intent of reg-
ulation is to avoid apparent, as distinct from real, abuse through
the control of the use of private, as distinct from public, funds in
activities which we have been taught are a fundamental constitu-
tional right. We believe we are a vital part of American society and
we have committed ourselves not only to alleviate the suffering of
the poor through almsgiving, but also to work for justice in the in-
terest of the common good. We cherish the freedoms this country

assures its citizens and citizen groups. We therefore implore you to
do whatever is possible to assure the withdrawal of the proposed
amendments to Circular A- 122. Thank you.
[Ms. Shanley's prepared statement follows:]

TESTIMONY OF

MILDRED SHANLEY

STAFF COUNSEL

CATHOLIC CHARITIES OF THE DIOCESE OF BROOKLYN

ON BEHALF OF THE

NATIONAL CONFERENCE OF CATHOLIC CHARITIES

I am Mildred Shanley, Counsel and Program Officer with Catholic Charities
of the Diocese of Brooklyn, New York. I am also the Chairman of the Legislative
Committee of the National Conference of Catholic Charities. It is in this
latter context that I testify on hehalf of the approximately 1000 Catholic
Charities diocesan and branch agencies and related institutions providing
human services in virtually every county of the United States.

The issue before us and before this Subcommittee is the proposal by the
President's Office of Management and Budget to drastically alter the vital
historical role of voluntary, including religious, associations in our society
in relationship to public policy and the role of the federal, state and local
government. The Administration has invented a concept of "political advocacy",
which has no constitutional or other legal basis, and under its definition
would proscribe nearly all activity on behalf of the organized voluntary
sector which during the history of our country has given our government its
meaning and its role. If the proposed amendments to 0MB Circular A-122 were
now in effect, I could not even be here discussing this historical role with
you. The change proposed is so drastic, so fundamental, so contrary to our
laws, so unconstitutional, that if it is not withdrawn and is allowed to go into
effect, we would have to resurrect Alexis de Tocqueville to undertake a new
tour of this nation, whereupon he would have to sadly observe that the
previous voluntary sector genius which gave this nation and its government
its vitality has largely been stilled.

It is ironic that an Administration which prides itself on encouraging
the strengthening of the private, voluntary and non-profit sector contains
within it high officials with anti-democratic beliefs who would silence the
voluntary sector from coming forth with a defense of the elderly, the sick,
the homeless, the foster children, the refugees, indeed, the constitutional
rights of the non-profit sector itself.

We hope that the proposal before us is simply the lack of thought, the
lack of historical and constitutional insight, the product of simplistic
reasoning, or the product of a random zealot or a rogue elephant in the
Administration. If not, it represents the kind of thinking and the imposition
of arbitrary will which can destroy our civil liberties. If, as we believe,
it is unreasoned, unconstitutional and far exceeding either OMB's jurisdiction
and the laws of Congress, we would expect the Administration to withdraw
the proposed regulation.

While it is true that the National Conference of Catholic Charities does
not presently have a federal grant - it recently did - Catholic Charities of
Brooklyn has a number of such grants which would bring us under the
regulations. So, too, for Catholic Charities throughout the country. The
government relies on us and other church sponsored and secular non-profit
agencies to deliver human services. If you preclude an agency such as
Catholic Charities, which has advocacy for social justice among its stated
purposes, from delivering services with government funds, you will wind
up with an even larger government bureaucracy, and you will have a statist
system of human services.

Independent Sector's President Brian O'Connell's major categories of
criticism of the pending rule change seem to have defined the debate. The
proposedcjrule=is''unnecessary. The propsoed rule is unworkable. The proposed
rule is unconstitutional as well as well beyond the laws of the United States.
UNNECESSARY

At the outset, let me state that Catholic Charities supports the
proposition that federal funds should not be used to influence legislation
unless in its wisdom the laws passed by Congress and signed by the President
should permit some exceptions. In our own field, we note one exception in
Title XX of the Social Security Act, the social service title, which has
stated that social services are what the various states defined them to be.
In this case, advocacy to secure entitlement benefits for the elderly and
others was clearly a reimbursable expense and a permitted activity. There
are others as well.

Catholic Charities operates strictly within the current restrictions
of the Internal Revenue Code. We do not participate in elective politics,
and we do not violate the substantiality provisions of the Code. At the
same time we are prohibited by law, and by our choice, from exercising the
501(c) (h) option of the code which defines lobbying limitations in clear
dollar terms. We would point out that the legislative history of this
provision makes clear that it is meant in no manner to define "substantiality."
Yet we feel that in practice we are likely to fall below the dollar marks in
(c)(h). It is confusing if you would count a sermon in church on Sunday as
grass roots lobbying rather than an act protected by the First Amendment.

20-644 0—83-

In addition, we are careful to observe the strictures of other federal
laws which prohibit the use of federal grant funds to influence legislation.
We are unaware of a single abuse or violation by our member agencies of the
provisions of the Code or other laws restricting advocacy. If there are
abuses or violations, we would support action against them. We have, though,
been unable to locate a copy of the purported GAO study of such abuses which
is cited as a basis for the proposed rule change by the President's Office
of Management and Budget. In addition, our national staff has been involved
in discussions about the proposed rule with the Office of Management and
Budget, and the OMB has not been able to cite any but a few purported abuses
out of the several hundred non-profit organizations in our nation.

It does, therefore, seem clear to us that the proposed change in OMB
Circular A-122 must be designed to do something else than curb non-existent
abuse. We believe that its author or authors intend the change to have a
totally chilling effect on the relationship between the voluntary, independent
non-profit sector of our country and the development and administration of
our government's social policy responsibilities.

UNWORKABLE

That brings us to our second area of concern and opposition to the OMB
proposal. We believe both that its administration would place an undue
burden on government and the non-profit sector, and that its chilling effect
would begin to revamp the historic role of voluntarism in our country, that
role of the voluntary sector which has, as de Tocqueville observed some time
ago, provides such vitality and creativeness for our nation.

On the matter of administration or enforcement of the sweeping rule*
I would observe that one of the major purposes of thousands of our voluntary
associations - advocacy for any number of causes - would be denied, or
thousands of these associations would die, and our society would suffer
sorely for their death. On the other hand, in order to enforce the incredible
breadth and depth of the order, the government would have to have squad after
squad of investigators prowling the halls of tiny and large non-profit
organizations, or terribly complex and frequent questionnaires too burden-
some for all but the largest of the non-profit associations to complete.

Frankly, we believe that if the order is to be permitted to go into
effect, we will all witness the most massive movement of civil disobedience
this country has ever seen. It does not seem wise to us, or possible, to
generate respect for law by enacting unwise and utterly unenforceable laws.

Let me cite just a few examples of what the regulation change might mean
about the interaction between the Catholic Charities Movement and federal,
state and local government.

Refugees to this country are not settled by the federal government,
though the government, on behalf of all the people of the country, does pay
some of the Initial costs of resettlement. Refugees are resettled by the
non-profit sector, and in good measure by the religious groups of the country.
In the case of the post-Viet Nam refugees, over 50% were resettled with the
help of Catholic Charities agencies. Are our experiences and ideas only
to be available to the government upon written request of each party in the
government, on the federal, state and local level? And in the later case
of Haitian refugees, we again and again had to appeal to Members of
Congress and to the Justice Department, the Immigration and Naturalization
Service, and the White House itself, and we had to join in representation
before the courts to see that the laws of our nation were adhered to by our
own government. Was this improper activity? It would largely be prohibited
by the pending rule.

Most children in foster care are under the jurisdiction, through the
laws of the states or the action of the courts, of non-profit organizations
such as Catholic Charities. We care for them and try to move them back into
permanence with their families or, if that proves impossible, with loving
adoptive parents. All of this service is partially reimbursed with state
and federal funds, out of our nation's concern for the health and strength
of children and their families. It became apparent some years back that the
foster care system was sluggish, that thousands and thousands of children
were being stuck there rather than being returned to or moved to permanence
in a family. What happened? Non-profit groups appealed for changes In
federal law to rectify this situation. And with the leadership of Congressman
George Miller and then-Congressman John Rousselot of California, change was
made. Was this inappropriate behavior on our part, as long as it was within
the strictures of the Internal Revenue Code? The proposed 0MB rule would
effectively forbid this sort of action.

We could give hundreds of examples where interaction between those
agencies delivering services and the government is essential to improve that
service, and where the initiative must be taken by the service providers.
I will give only one more. In the field of mental health, the government
prematurely insisted on the deinstitutionalization of emotionally or mentally
ill patients before there was a structure of halfway and other houses ready
in the community, along with the supportive social service systems, to
most enhance the ability of these citizens to cope. In community after
community, agencies have had to initiate contacts with and combat zoning boards
to enable the creation of small residential facilities in the neighborhoods
of our cities and towns. Even this contact with local zoning boards would
in many instances be prohibited by the 0MB change in Circular A-122.

It almost seems that the proposed change is designed to get the government
out of human concerns and human caring altogether. It is quite apparent that
government could not function as a supporter in these areas if the experience
of the private sector is not available to it.

UNCONSTITUTIONAL

We believe the proposed rule change exceeds the authority of the OMB,
violates and extends far beyond existing federal law in the Internal Revenue
Code, the various authorizations and appropriations bills, and is, in fact,
a violation of the First Amendment rights of our Catholic Charities organiza-
tions. Others will spell out the arguments for these concerns in great detail.
For our part, we can find no reasonable grounds for the executive branch of
our government, or even, for that matter, the legislative branch, to curtail
our right to speak and to petition our government.

The National Conference of Catholic Charities is a party to an amicus
brief on the First Amendment issue in the Taxation case before the Supreme
Court. You can imagine how distressing it is to us to realize that if the
proposed OMB restrictions were in effect, we might very well not even be
able to appear as a friend of the highest court of our land on a matter
central to our constitutional rights, unless we, ourselves, were a party
to the suit involved.

CONCLUSION

There is a bottom line. Our examination of the issues and problems
surrounding the OMB Circular A-122 change on advocacy suggests clearly that
it cannot be amended before final promulgation, that it cannot be modified
or changed around the edges. The regulation and the concept behind it is
fundamentally flawed. The bottom line, the only acceptable action on the
part of the government, is withdrawal of the proposal.

We find it troubling that our government should have in our service
people who are so insenstivie to the fundamental concepts underlying our
democracy. We find the philosophy underlying the OMB rule to be totalitarian
in nature. And we feel its promulgation would be totalitarian in effect.

Mr. Brooks. Thank you very much. I would like to ask you one
question. How would this proposal affect the nonprofit organiza-
tions' ability to deliver services at the local level? Would it have
any impact there?

Ms. Shanley. Yes; it would make us choose between delivering
services, being able to speak out on current issues, or incur signifi-
cantly increased costs to do both.

Mr. Brooks. Mr. Horton?

Mr. Horton. I have no questions, thank you.

Mr. Brooks. Thank you. Mr. dinger?

Mr. Clinger. Thank you very much, Ms. Shanley.

Mr. Brooks. Our next witness is Robert Weymueller. Mr. Wey-
mueller is director of government relations for the American Lung
Association and formerly executive director of the Association's
medical section.

He has worked in the tuberculosis field since graduation from
Kent State in 1949. That is a long time. You don't smoke ciga-
rettes, do you?

Mr. Weymueller. No, sir.

Mr. Brooks. You have never found any evidence that cigar smok-
ing causes any health problems, have you?

Mr. Weymueller. I would rather pass on that.

Mr. Brooks. We are delighted to have you with us and if you will
proceed with a summary, we would accept your prepared statement
for the record.

STATEMENT OF ROBERT G. WEYMUELLER, DIRECTOR OF
GOVERNMENT RELATIONS, AMERICAN LUNG ASSOCIATION

Mr. Weymueller. Mr. Chairman, and members of the subcom-
mittee, I am delighted to be here and I was particularly heartened
by the thrust and tenor of your opening statements, Mr. Brooks,
and Mr. Horton. I think that it is essential that we keep in mind
that some damage has already been done out in the community
just by the promulgation of the possibility of these amendments.
Some of you may remember back to the early 1970's under a previ-
ous administration when the IRS suddenly got on the case of sever-
al voluntary health groups and it cast a chill on public advocacy
that is still with many of our volunteers now. There was no nega-
tive finding and nothing done but just the possibility scared people
away from public advocacy. I think we are into this mode again.

Mr. Brooks. Will the gentleman yield for a moment?

Mr. Weymueller. Yes, sir.

Mr. Brooks. There were several groups who were very interested
in this particular hearing who said that, maybe they had better not
testify publicly but that they wanted to submit statements. They
didn't want to testify though and that proves that the chilling
effect of just the promulgation of this kind of an edict is disastrous.

Mr. Weymueller. Exactly.

Mr. Brooks. For public opinion, and a free expression under the
Constitution.

Mr. Weymueller. That's right.

The American Lung Association is America's oldest voluntary
health association and we have had a lot of experience in this field.

We strongly oppose these proposals. We feel they are unnecessary
and unreasonable, they should be pulled back, revoked and not just
amended. And the sooner, the better.

From the founding of the American Lung Association some 80
years ago, our citizen volunteers have worked to improve the
public health. Our basic approaches have been through education,
demonstrations, and seed money for research. But we learned early
on that one of the best ways for improving health was to improve
public health policies so our entire history has included public ad-
vocacy, starting with tuberculosis control and now covering all
lung diseases. We have an oversight method within our organiza-
tion for tracking those issues. The staff doesn't just decide that sud-
denly we are going to take off and oppose or propose. We have a
volunteer board of directors which determines which advocacy pri-
orities are related to our health priorities. It is also our volunteers
who are consulted regarding the appropriateness of occasional Gov-
ernment grants that we receive to supplement our programs and I
underscore occasional.

Besides the oversight of our volunteers, public advocacy pro-
grams operate within the constraints of the governing of all tax-
exempt 5013C organizations, which we are. We are registered
under the 1976 legislative law and, as you know, that legislation
explicitly recognizes the validity of nonelectoral lobbying by groups
such as ours, subject to certain conditions. When it comes to avoid-
ing the use of Federal grant funds to lobby, that principle has long
been established in law and that has been brought out here. In
health for instance, since 1979 the Health and Human Services ap-
propriations bills have routinely carried a prohibition against the
use of any of those funds for lobbying.

Ironically, the proposed restrictions come at the very time that
the administration is trying to send a signal to the private sector
that we should work more closely with Government, that we
should be more supportive, take up some of the load previously
done by Government. To add to the dilemma facing groups such as
ours, the recent Executive order which has been alluded to here re-
garding the Combined Federal Campaign declared that any of the
participant health and welfare groups carrying out public advocacy
programs would no longer be eligible to participate in CFC. I would
remind you that the funds from this campaign are not grants. They
are contributions of Federal workers. Now, just to cite one example
of the public's benefit from advocacy of groups like ours, I would
tell you about the Lung Association, Heart Association, and the
Cancer Society 2 years ago working together with Members of Con-
gress to save the funding for the Office on Smoking and Health
which Mr. Stockman and others felt should be cut severely. The
future of that office was in jeopardy. This at a time when the Sur-
geon General was saying that smoking is the single most prevent-
able cause of death in this country. And we were talking here
about only $2 million for OSH.

Now in fiscal 1984, I think it is ironic the President himself has
recommended that that Office be increased in funding by 75 per-
cent so apparently the administration now feels that the modest
Federal program is worth not only saving but improving.

I would like to comment that most of the grants in my experi-
ence over the years have been grants that the Government felt the
private sector could do better or would do better with and I think
they were right. The problems for the American Lung Association
would be substantial under these regulations — but it is the small
group that would really be devastated — the small health agencies
and I cite just one, the National Society for Autistic Children
which has seven full-time members. Yet it is a conduit for a
$100,000 grant to help teach autistic children throughout the coun-
try how to cope. That society would be devastated by what is being
proposed.

In the final analysis, the OMB proposals are essentially a matter
of bureaucratic overkill on what is perceived as a major problem
but is not. Thank you.

[Mr. Weymueller's prepared statement follows:]

Testimony Presented By

Robert G. Weymueller

On behalf of

American Lung Association

I am Robert Weymueller, Director of Government Relations for the American Lung
Association, which is this country's oldest voluntary health association. I very
much appreciate the opportunity to express publicly the strong opposition of the ALA
to the proposed amendments by the Office of Management and Budget to its "Cost
Principles for Nonprofit Organizations" (OMB Circular A-122). The amendments which
would greatly restrict and hamper the public advocacy of voluntary organizations
that receive federal funds are unnecessary and unreasonable. They should be with-
drawn not modified as OMB now says it will do in view of the firestorm of reaction
from the private sector. They have doubtless already had a chilling effect on future
advocacy plans of groups of all types because of the clouds of uncertainty that have
been created.

From the founding of the American Lung Association some 80 years ago, our
citizen volunteers have worked to improve the public's health. Our basic approaches
have been through education, demonstrations and seed money for research. We soon
learned, however, that one of the fundamental ways to improve health is to improve
public health policies at all levels. Our supporters expect this of us. Determining
which advocacy issues relate to our health priorities is the responsibility of our
volunteer board of directors. It is also our volunteers who are consulted regarding
the appropriateness of occasional governmental grants to supplement our programs.

Besides the oversight of our volunteers, the ALA public advocacy program is
carried out within the constraints governing all tax-exempt organizations. In
recent years, the Lung Association has come under the 1976 tax legislation passed
by Congress. As you well know, that legislation explicitly recognized the validity
of non-electoral lobbying by 501(c)3 nonprofit groups such as ALA, subject to
certain conditions. When it comes to avoiding use of federal grant funds to lobby,
that principle has long been established in law. One example relevant to grants to
health organizations is the prohibition Congress has added to Health and Human
Services appropriations bills in recent years barring use of any of these funds
to lobby issues before Congress.

Ironically, the proposed OMB restrictions send a negative signal to the
private sector at just the time the Administration is asking the sector to pick
up more of what the government has done in the past. To add to the dilemma facing
charitable organizations, the recent Executive Order regarding the Combined Federal
Campaign declared that any of the participant Health and Welfare groups carrying
out public advocacy programs would no longer be eligible to participate in the CFC.
In this instance, the funds in question are voluntary contributions from federal
workers, not government grants.

To cite just one example of the public's benefit from our advocacy, it was the
Lung Association, Heart Association and Cancer Society at a key time two years ago
that convinced Congress to restore funds for the Office of Smoking and Health after
OMB had recommended severe cuts and its future was uncertain. Now, in FY 84, the
OSH has been recommended for a 75% increase by the President. This is a remarkable
turn around for the modest federal program dealing with smoke prevention education
at a time the Surgeon General describes cigarette smoking as the chief cause of
preventable deaths in this country.

By proposing changes that would force voluntary health organizations to choose
between federal funds or their traditional public advocacy role, the OMB is creating
an unusual problem for the government itself. It has been my observation that a
substantial proportion of the health grants or contracts to groups such as ALA have
been for the purpose of carrying out standard-setting or educational programs that
the government believed, and rightly so, would be better accepted coming from the
community. For example, when I was the Executive Director of ALA's Medical Section,
the American Thoracic Society, we were encouraged to take leadership in establishing
minimum epidemiological lung research standards via an NIH contract. Other mutually
beneficial projects that have been carried out include model chronic lung disease
education programs to be conducted by black lung clinics, respiratory medical device
standards, tuberculosis therapy follow-up studies, among others.

These proposed new restrictions would impact upon larger organizations such as
ALA, but they would make for an impossible situation for the small nonprofit health
groups. Those agencies such as the National Society for Autistic Children which
has only seven full-time staff members provide services of critical importance to
the public plus an invaluable insight in the development of health care policies.
That Society is currently the recipient of a special education grant of $100,000
that permits working through universities to train teachers on the best ways to
teach autistic children. Please bear in mind that without such instruction, 95% of
the autistic adults end up in institutions and have health care costs two to three
times individuals trained to cope. Why should the Autistic Society's overall
operations be made needlessly complex or its public policy voice muted? What would
the government achieve and at what cost?

In the final analysis, the OMB proposals are essentially a matter of
bureaucratic overkill on what is perceived as a major problem but is not. The
restrictions would go far beyond those limitations currently imposed by Congress,
program statutes or the tax laws and would apply to many non-federally funded
activities of organizations like ALA. However it is worded or reworded, a further
OMB limitation on public advocacy would confront established and venerated
charitable agencies with a choice between two undesirable results: forfeit
urgently needed funds or cease to exercise our traditional rights as citizens to
communicate and participate in the lawmaking process.

100

Mr. Brooks. Thank you very much and I would like to ask you
just one question. Do you foresee a danger that this OMB proposal
could give governmental agencies the power to pick and choose the
views that they hear on pending governmental decisions by solicit-
ing opinions only from friendly organizations?

Mr. Weymueller. Very much so, sir.

Mr. Brooks. Mr. Horton?

Mr. Horton. Mr. Chairman, thank you. Mr. Weymueller, I think
you have an excellent statement. It is characteristic of all the other
statements — I have been trying to read through them up here this
morning, and I have been through a number of them. But it is typi-
cal of what is being said by organizations, conscientious organiza-
tions, that have tried to do their job, especially in the volunteer
field.

As you heard earlier — I am concerned about the allocation of lob-
bying costs of particularly some of these big contracts like the one
that was referred to earlier in the Department of Defense. What
went on there is wrong. I think that there ought to be somebody
stepping on people's toes when they do that, and holding their feet
to the fire, and exacting out of them one way or the other, either
through the Inspector General process, or through litigation, to
make certain that they don't do that type of thing.

But I think yours is a very typical statement of what I am sure
we are going to be hearing this morning and this afternoon from
the nonprofit volunteer organizations that are trying to do a job in
this country that makes the difference in our ability to accomplish
things in the fields that are not provided for by government or by
business and so forth.

Unfortunately, the people from OMB aren't here. I have a whole
stack of this testimony, and I am going to ask my staff to send a
letter which I will sign to Mr. Wright at OMB, enclosing copies of
all this testimony, and particularly yours. I will ask that that
person who is going to be working on that revision in the next 2
weeks to take a moment to read through some of these so that the
people at OMB can be impressed that this is not just a group of
unconscientious people complaining, but that these are sincere
people who are very, very much concerned about the implications
of what this proposed circular revision can do. I was impressed that
the others who have testified, in particular the Comptroller Gener-
al, stated that there really isn't that much need for this, that there
is not that big a problem of using Federal funds for lobbying pur-
poses. I am going to ask that they take a hard look at this type of
testimony.

Thank you very much, it is excellent testimony.

Mr. Brooks. I want to thank you very much for your testimony
and for coming down here and being with us.

Mr. Weymueller. Thank you, sir.

Mr. Brooks. We have Florence R. Rubin of Newton, Mass., as
our next witness. She represents the League of Women Voters of
the United States where she is serving her fourth term as a
member of the National Board of Directors. She is a political con-
sultant with wide experience in State and local government, a
former chair of the Massachusetts Judicial Conduct Commission,
and was a leader in the successful campaign to reorganize the Mas-

101

sachusetts courts. She now serves on the Board of Directors of the
Massachusetts Council for Public Justice.

We welcome you here today. You may summarize your remarks
and put your whole statement in the record, if you would like. We
are very pleased to have you here.

STATEMENT OF FLORENCE RUBIN, DIRECTOR, LEAGUE OF

WOMEN VOTERS

Ms. Rubin. Thank you, Mr. Chairman. I would like to request
that the complete statement be incorporated in the record.

Mr. Brooks. Without objection.

Ms. Rubin. Mr. Chairman, and members of the subcommittee,
the League of Women Voters of the United States is a nonpartisan
citizen organization with members in all 50 States as well as in the
District of Columbia, Puerto Rico, and the Virgin Islands. The
league is concerned about the disastrous effect of OMB's proposal.
We are concerned about the effect this would have on the partici-
pation of nonprofit organizations in the political process. We be-
lieve that OMB is having difficulty in formulating the changes that
it is proposing because those changes are basically unsound, unnec-
essary and possibly unconstitutional. They strike at the heart of
two basic concepts of government; the right of the public including
nonprofit organizations to have full access to the governmental
process and the need of Government officials for information on
which to base public policy decisions.

Further, we believe that the language proposed by OMB in deal-
ing with political advocacy is overly broad, goes beyond
congressional intent, threatens protected first amendment rights,
and is generally unwise.

I can't help but comment that the effort by OMB appears to be
out of line with the announced policy of the administration to de-
crease the regulatory activities of Government. OMB's action
would extend the regulatory power of that agency to a new and un-
precedented area. I might also endorse the comments that were
made by previous speakers about the inconsistency of such a pro-
posal in light of the administration's desire to form an effective
compact between Government and the private sector in the deliv-
ery of services.

Our basic concerns can be characterized as follows:

One, we believe that OMB lacks the statutory authority to pro-
mulgate a directive of this nature. We know of no law that Con-
gress has passed of general applicability authorizing such a broad
regulatory reach into the realm of political expression; and two,
OMB has failed to bring forth convincing evidence of any need for
this amendment to Circular A-122. All of us heard the Comptroller
say this morning that there were no major abuses. The change
would represent a radical departure from accepted practices and
there does not seem to be a convincing need for such a change.

Three, we are deeply concerned about the impact of the proposed
change on the exercise of rights protected by the first amendment
and on the political process. We are particularly concerned about
OMB's expanded definition of political advocacy. To OMB political
advocacy would include contact with all levels of government and

102

efforts to influence public opinion as well. The very activities OMB
wishes to restrict, I understand, have been recognized by the Su-
preme Court as forms of political expression entitled to the full
protection of the first amendment.

In OMB's expanded definition of political action, we would have
concerns about litigation that some nonprofit organizations are in-
volved with now when they file amicus briefs and we are also con-
cerned about the broad reach of OMB's proposal in including as po-
litical advocacy attempting to influence governmental decisions
through communications with Government officials and employees.

This seems to be so open ended a definition of governmental deci-
sions that it would encompass virtually every kind of action possi-
ble by a governmental body. It is conceivable that this aspect of po-
litical advocacy could be construed to include most of the things
that a nonprofit organization might do in its relationship with any
branch or level of government. It is also apparent that because of
its vagueness, the proposal, if implemented, would require a great-
ly augmented OMB staff to enforce and interpret it.

I was interested this morning in the questions that were posed to
OMB about whether they had considered the fiscal impact of these
proposed changes, and clearly they had not considered that impact
on the nonprofit organizations nor, I dare say, on OMB itself since
it would have a great deal of difficulty, I would imagine, in enforc-
ing the provisions that were so vague and allowed so much discre-
tion.

There are a number of things that we feel are unclear in these
proposed changes. For example, would OMB consider a publication
produced for wide citizen use that contained a pro and con discus-
sion of a contemporary political issue to be an attempt to affect the
opinions of the general public or any segment thereof in order to
influence a governmental decision?

And how would OMB treat a conference involving an array of
speakers with a variety of views on a public policy issue? We are
really deeply concerned that the net effect of this broad brush ap-
proach, and the vagueness that permeates the descriptions of politi-
cal advocacy, would force nonprofits to be really afraid to do any of
the normal activities that might be considered political advocacy.

And we are also concerned about the unjustifiable burdens it im-
poses by requiring separate staff, separate offices, separate equip-
ment. While the League of Women Voters of the United States is
not a Federal grantee or contractor, we do share office space facili-
ties and equipment with what OMB might consider an affiliated or-
ganization, the League of Women Voters Education Fund. The Edu-
cation Fund is a charitable trust with 501(c)(3) status and it has in
the past provided services to the Government through Federal
grants and contracts. Since the LWVUS is a political advocacy or-
ganization, these changes might affect the relationship between the
LWVUS and the LWVEF and force separate office space, and that
would be a financial hardship for both organizations.

To make matters worse, the OMB proposal does not really clear-
ly identify what it means by affiliated organizations. It is quite
clear that if these changes were to go into effect, only the organiza-
tions that were large and well financed would be able to fulfill

103

their role in the contracts as well as exercise their first amend-
ment rights.

We are also concerned about the impact on the public if this pro-
posal is implemented and its chilling effect on nonprofit organiza-
tions, preventing them from performing the wide range of func-
tions and activities that play such an important role in the demo-
cratic process.

There was a case in West Virginia that the league was involved
in as an amicus curiae and I just wish to quote a small part of the
decision:

To prohibit robust debate on the questions [of that suit which were environmental
issues] would deprive society of the benefit of its collective thinking and in the proc-
ess destroy the free exchange of ideas which is the adhesive of our democracy.

Mr. Chairman, in concluding, I really do wish to thank you for
holding hearings on this important subject by bringing the atten-
tion of Members of Congress to the problems created by OMB's pro-
posed change in Circular A- 122. We hope that the change will not
only be sent for further review as OMB indicated this morning, but
that it will be removed altogether. We really do not want a revised
version of this proposal; we v/ould hope that it would be stopped
altogether so that we can prevent OMB from really demolishing
the legitimate and important role played by hundreds of nonprofit
organizations in the governmental decisionmaking process. Thank
you, Mr. Chairman.

[Ms. Rubin's prepared statement follows:]

104

TESTIMONY BEFORE THE
SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY

FLORENCE RUBIN, DIRECTOR

LEAGUE OF WOMEN VOTERS OF THE UNITED STATES

Mr. Chairman, members of the Subcommittee, I am Florence Rubin, a member
of the Board of Directors of the League of Women Voters of the United
States. I am here to express the League's concern about the changes
that 0MB proposes to make in Circular A-122, "Cost Principles for Non-
profit Organizations," that would establish special provisions for costs
related to "political advocacy."

The League of Women Voters of the United States is a nonpartisan citizen
organization with members in all 50 states as well as the District of

Columbia, Puerto Rico and the Virgin Islands. Ours is an organization
whose very existence is based on citizen participation in government.

In all its efforts, the League of Women Voters' stock in trade is citi-
zen access to governmental processes and governmental decision making.
Believing that an informed citizenry is an essential part of a democratic
system, the League seeks to inform citizens about how government works
and to motivate them to become involved and informed participants in the
democratic process. Therefore, we express our concerns to you today
about 0MB 's proposed changes that we believe would adversely affect the
democratic processes whose functioning we believe is necessary for govern-
ment to operate properly.

105

We are frankly appalled at the attempt by 0MB to effect changes in Circu-
lar A-122 that would have an adverse impact on the political process.
The changes proposed are ill-advised, unsound and possibly unconstitu-
tional. We believe that they strike at the heart of two basic concepts
of government: (1) the right of the public (including nonprofit organiza-
tions) to have full access to the governmental process; and (2) the need
of government officials for information on which to make sound and informed
decisions. The proposed changes would disallow certain costs related to
federal grants and contracts, and seek to impose a wall of separation
between government grant activity and organizational activity that may in-
clude what 0MB defines as "political advocacy." We believe that the lang-
uage proposed by 0MB is overly broad, goes beyond congressional intent,
threatens protected First Amendment activities and is generally unwise.

Further, this effort by 0MB appears to be out of line with the announced
policy of the Administration to decrease the regulatory activities of
government. 0MB' s action would extend the regulatory power of that agency
to a new and unprecedented area.

We maintain that the 0MB language poses a serious threat to legitimate
activities that the League has sought to encourage since its inception
in 1920: the ability of citizens and organizations to communciate with
and participate in all aspects of government. We believe that the abil-
ity to influence government decision making is an essential and appropri-
ate aspect of the democratic process. Since the proposed 0MB directive
is targeted to nonprofit organizations, we assume the greatest effect
would be on public charities tax exempt under 501(c)(3) of the Internal
Revenue Code, and on smaller. nonprofits. A very heavy impact would be
borne by these organizations because they would be restricted from parti-
cipating in the democratic process or they would have to forego seeking
government grants and contracts. Specifically, we think a 501(c)(3)
affiliated with another organization, or a small nonprofit could not
afford to establish physically separate facilities and staff for

activities 0MB might possibly construe as political advocacy.
5

106

Our basic concerns can be characterized as follows:

1. We believe that OMB lacks the statutory authority to promulgate a
directive of this nature. We know of no law that Congress has passed
of general applicability authorizing such a broad regulatory reach
into the realm of political expression. While OMB cites no particular
legislative authority for its proposal, it seems clear that OMB's
proposed restrictions also go well beyond any that Congress has imposed
on particular federal funding programs. Further, OMB's own explanation
accompanying the proposal confirms its intent to go beyond the restric-
tions on influencing legislation that Congress has imposed on all
public charities under Section 501(c)(3) of the Internal Revenue Code.

2. OMB has failed to bring forth evidence of any need for this amendment
to Circular A-122. The change would represent a radical departure from
accepted accounting practice, and indeed the general principles of
Circular A-122 itself. The OMB proposal would operate in a manner
totally at odds with the purpose of Circular A-122 as articulated

by OMB itself, and that is to "provide that the federal government
bear its fair share of costs except where restricted or prohibited
by law." There is no question that the government has a duty to
prevent the use of federal funds for purposes not related to a specific
grant or contract, or for improper purposes as defined by specific
statutory limitations. That governmental need can be met by existing
cost accounting practices under Circular A-122. When an agency
proposes a rule that represents a radical change from existing rules,
without specific statutory authority and with no demonstrated need for
the change, it seems very clear that the agency is acting arbitrarily,
capriciously, and unlawfully. Such is the case with this proposal.

3. We are deeply concerned about the implications of the proposed change
for the exercise of rights protected by the First Amendment and for

107

the political process. Congress has shown a careful respect for the
expression of political views, and for the ability of citizens and
organizations to be informed about and to comment on the government
decision making process. It would be a travesty for 0MB to ride
roughshod over those rights that Congress and the Courts have been
careful to protect. As an example of 0MB' s peculiar reasoning, we
point to its expanded definition of "political advocacy." To 0MB
political advocacy would include contact with all levels of government,
and efforts to influence public opinion as well. The Supreme Court
has recognized the very activities 0MB wishes to restrict as forms of
political expression, entitled to the full protection of the First
Amendment.

Let me elaborate on our concerns about OMB's definition of political
advocacy.

As I have noted, many of the nonprofit organizations that perform services
under government grants and contracts have tax-exempt status under Section
501(c)(3) of the Internal Revenue Code. Statutory restrictions limit the
amount of effort or resources that these organizations can devote to
influencing legislation, and prohibit these organizations from engaging
in any election-related partisan political activities.

0MB has stated explicitly in the Federal Register that language relating
to political advocacy is intended to go beyond restrictions imposed by
Congress. 0MB -- with its definition of "political advocacy" -- has
attempted to create by fiat restrictions on forms of political expression
undeniably entitled to First Amendment protection.

20-644 O— 83 8

108

A prime example is Section 1 . b. (5) , which defines one aspect of political

advocacy as:

participating in or contributing to the expenses of
litigation other than litigation in which the organization
is a party with standing to sue or defend on its own
behalf.

The Supreme Court recognized in NAACP v. Button , 371 U.S. 415 (1963),

the decision 0MB misconstrued, that access to courts -- in that case for

the purpose of protecting civil rights -- is a form of political expression

entitled to Constitutional protection. Apparently, nonprofit organizations

that file amicus briefs, represent others in civil rights or public interest

litigation, or provide financial support for such litigation -- all

permissible activities for 501(c)(3) organizations — would still be

deemed by 0MB to be engaging in "political advocacy." It would seem that

nonprofit organizations could perform services under federal grants and

contracts only by foregoing a legally recognized right to use the court

system.

The broad reach of 0MB' s proposal is also apparent in Section 1 . b. (4) ,
which includes as pol itical advocacy "attempting to influence governmental
decisions through communications with government officials and employees."
The separate definition of "governmental decisions" appears so open-
ended as to encompass virtually every kind of action possible by a gov-
ernmental body.

Another flaw in 0MB' s proposal is evident in this section: the vagueness
of the language makes it impossible to determine the proposal's limits.
Nowhere in the proposal is there a definition of "influencing," "commu-
nications," or "attempting." The vagueness of this section would leave
all protentially covered organizations to wonder, without any guidance,
whether they were engaging in political advocacy if they:

--submitted written comments on proposed regulations (1-frtfe- thi s
amendment to Circular A- 122);

109

--sent staff to meet with federal officials to discuss whether an
agency was developing any regulatory changes, even if the meeting
was used to collect information needed to carry out a federally-
funded project;

--sent government officials the results of a study or research project
bearing on a currently "hot" topic in public policy (assuming the
results had not been requested in writing, the next question would
be whether, in order to qualify as an exception to political advocacy
under Section l.c.(l), the distribution was "not primarily designated
to influence. . .any governmental decision").

It is conceivable that this aspect of "political advocacy" could be construed
by 0MB to include virtually every kind of contact a nonprofit organization
might have with any branch or level of government in the course of carrying
out any of its ongoing activities.

Not only that -- it is apparent that because of its vagueness, the proposal,
if implemented, would require a greatly augmented 0MB staff to enforce it
and interpret it. Further, it would place in OMB's hands a great deal of
discretion that would enable 0MB to enforce the provisions heavily in one
area or against one group and differently in another situation.

Look also at the enormous potential hidden behind the vague language of
Section l.b.(3), which defines as political advocacy, "attempting to
influence governmental decisions through an attempt to affect the opinions
of the general public or any segment thereof."

For example, would 0MB consider a publication produced for wide citizen
use that contained a pro and con discussion of a contemporary political
issue to be "an attempt to affect the opinions of the general public or
any segment thereof" in order to influence a governmental decision? Is
promoting public understanding and discussion of an issue an attempt to
affect the opinions of the general public in order to influence government
decisions?

110

How would 0MB treat a conference, involving an array of speakers with a
variety of views on an important public policy issue? Are a nonprofit
organization's fundraising solicitations -- such as a direct mail appeal
describing the work of the organization -- within the definition of
political advocacy? They are undeniably addressed to the general public,
and, if they are effective, they affect the opinions of those who receive
them.

As a final illustration of this problem of vagueness, I turn to Section
l.b.(6), under which contributions of any kind to another organization that
engages in "political advocacy" are themselves a form of "political
advocacy." How much political advocacy the recipient organization must
engage in to trigger this section is not possible to discern from the
proposal's language. Again, how would 0MB define a contribution? Would
0MB go so far as to include subscriptions to the magazines of those org-
anizations that treat purchasing a subscription as a means of becoming
a member?

We are deeply concerned that the net effect of this broad brush approach --
and the vagueness that permeates the descriptions of "political advocacy" --
would be to leave nonprofit organizations afraid that any of their normal
activities could be considered by 0MB to constitute "political advocacy."

Certainly there is nothing in the proposal itself to prevent that result.

While this proposal is objectionable because of its impermissible intrusion
into public access to government decision making, the unjustifiable burdens
it imposes compound its negative effects.

0MB proposes not only to deny federal reimbursement for costs of those
activities deemed to be "political advocacy" that are carried out as part
of a federal project; it also proposes to deny federal reimbursement for
otherwise allowable costs if an organization engages in "political advocacy"
that is financed with nonfederal funds.

Ill

For example, no salary costs for an individual would be allowable if that
individual, during hours other than those devoted to a federal grant or
contract, did any work 0MB views as political advocacy. Similarly, no
costs could be charged to federal projects for equipment or items (whatever
that means) that, in addition to being used for the federal project, were
used -- even once -- for an activity 0MB determined to fall within the
realm of political advocacy.

The provision about allowable space costs also imposes unacceptable burdens
on organizations. The 0MB proposal states that an unallowable cost would
be "building or office space in which more than 5% of the usable space
occupied by the organization or an affiliated organization is devoted to
activities constituting political advocacy." [Section l.f.(2)(a)] We
offer our own situation as an example. While the League of Women Voters
of the United States is not a federal grantee or contractor, we share
office space, facilities and equipment with what 0MB might consider an
affiliated organization, the League of Women Voters Education Fund. The
Education Fund, which is a charitable trust with 501(c)(3) status, has in
the past provided services to the government through federal grants and
contracts. Since the LWVUS is a political advocacy organization, the
imposition of the proposed 0MB changes might force the physical separation
of the LWVUS and the LWVEF. We submit to you that such a separation would
be a financial hardship on both organizations. As the arrangement stands
now, the expense of space is allocated proportionally between the two
organizations.

Further, nowhere in the 0MB proposal is the term "affiliated organization"
defined. The failure to provide such a definition leaves unanswered a
very basic question — how distant a connection to another organization's
"political advocacy" would satisfy 0MB that the nonprofit contractor is
not tainted?

112

When one looks at the potential financial penalties -- the disallowance
of federal reimbursement of any grantee staff costs, equipment or materials
costs, or space costs, for organizations engaging in "political advocacy,"
one concludes that these penalties are very harsh indeed, out of proportion
to the purported evil that 0MB wishes to stamp out. Practically speaking,
in order to be sure not to run afoul of the penalties 0MB proposes, most
nonprofits would be forced to set up a separate structure -- separate
location, separate facilities, and separate staff and management structure
to provide services under federal grants and contracts.

The reality is that for many nonprofit organizations, particularly those
that are small and without large financial reserves, the expense involved in
creating and maintaining such a separate entity would be prohibitive.
For those organizations the choice would become whether or not to undertake
federal projects. And, that choice would also mean the choice of whether
to refrain from any activities that might be deemed "political advocacy."
Only those organizations with substantial financial resources will be able
both to undertake federal projects and to continue to exercise their First
Amendment rights. Certainly that result is not acceptable.

There are other potential effects of this proposal as well. The broadness
of the 0MB language leads us to think that 0MB could construe as unallowable
activities for 501(c)(3)s that are also federal grantees any of their
usual, ongoing functions: citizen education, litigation, submitted comments
to agencies, and contacts with other organizations. Such nonprofit organ-
izations would therefore be forced into the choice that you, Mr. Chairman,
noted in your press release between performing government-funded civic
and public services or participating in the political process. Furthermore,
we are concerned that if 0MB gets a stamp of approval for this Pandora's
box definition of "political advocacy," there may spring forward a whole
second generation of restrictions on tax-exempt organizations, even for
those that are not in a position to provide services to the federal
government under grants or contracts.

113

Finally, we must address the impact on the public if this proposal is
implemented and its chilling effect discourages nonprofit organizations
from performing the wide range of functions and activities that play such
an important role in the democratic process. An eminent statement of the
importance of this public process was made recently in a state court
opinion interpreting the First Amendment.

The case arose in West Virginia; the League was involved as an amicus

curiae . In granting a writ to prohibit a libel suit by a coal company

against environmentalists who were reporting water pollution to federal

agencies, Justice McGraw of the Virginia Supreme Court of Appeals spoke

most eloquently about the very rights at stake in the proposal we consider

today:

we shudder to think of the chill our ruling would have
on the exercise of First Amendment rights were we to allow
this lawsuit to proceed. The cost to society in terms [of
the] threat to our liberty and freedom is beyond calculation.
This cost would be especially high were we to prohibit the
free exchange of ideas on such pressing social matters as
surface mining. Surface mining, and energy development
generally, are matters of great public concern. Competing
social and economic interests are at stake. To prohibit
robust debate on these questions would deprive society
of the benefit of its collective thinking and, in the
process, destroy the free exchange of ideas which is the
adhesive of our democracy. [ Webb v. Fury , West Virginia
Supreme Court of Appeals (1981), Slip Opinion, p. 32]

Conclusion

Mr. Chairman, in concluding my remarks, I want to thank you for holding
hearings on this important subject. By bringing the attention of members
of Congress to this problem, this committee can be a critical force in
seeing to it that these unwise changes do not go into effect.

114

I wish to close by returning to some of the broader considerations that
must be discussed. The proposed changes seem highly misguided and even
dangerous. We think they are bad policy. Essentially, we believe the
changes, if instituted, would not only restrict legitimate rights of
nonprofit groups, we also believe the government itself would suffer.
We are convinced that necessary information would be shut off from government
officials about the very programs they implement and oversee. Organizations
most knowledgeable about particular problems would be constrained from
commenting to governmental officials, if the organization had a federal
grant. Further, the public will suffer if the wide-ranging, robust public
debate on issues that the First Amendment assumes and protects is diminished.
Organizations that held federal grants would be unable to run litigation
programs without endangering their grants, would be unable to participate
in government decision making, could not seek to influence public opinion.
All these activities are legitimate and necessary for the democratic
process to work.

Further, the proposed changes would cost the government money. Leaving
aside the costs of monitoring compliance with the amended circular, the
government grants would in the future have to fund wholly separate staffs
for a project, for example. Entire Xerox machines would have to be leased
for projects, also, facilities and equipment, to abide by 0MB' s concern
over shared equipment and shared facilities. One could go on with examples.
The point is that such excessive restrictions are foolish, and would be
costly.

In this current effort, 0MB appears to have set itself up as an institu-
tion not bound by constitutional guarantees and seeking to exercise powers
far beyond its purpose. OMB's changes would impinge heavily on the
activities of nonprofit organizations -- a vital nongovernmental sector
of American 1 ife.

115

As an organization committed to an informed citizenry that participates in
the political process, the League of Women Voters opposes the 0MB changes
that would unconstitutionally and unwisely burden that process with artificial
walls of separation for political expression. At a time when the Admin-
istration is calling for increased volunteer activity and a strengthened
public-private partnership, the changes 0MB proposes would truly restrict
the ability of nonprofit organizations to engage in such a cooperative
effort.

We urge that Congress do all in its power to have 0MB withdraw and
abandon the proposed changes to Circular A-122, which potentially affect
hundreds of nonprofit organizations that have a rightful role to play in
governmental decision making processes. In addition, we would support
legislation to prohibit 0MB from effecting these proposed changes.

Thank you for the opportunity to make this statement.

116

Mr. Brooks. Thank you. I now have one question.

Would your organization be able to continue in operation with its
present structure under this OMB proposal?

Ms. Rubin. Our organization with its affiliation with the League
of Women Voters Education Fund would have great difficulty in
continuing with this present structure because of the tremendous
burden of additional expense that would be required to maintain
the two organizations.

Mr. Brooks. I want to thank you very much. I appreciate your
coming down and being with us today, and making a significant
contribution to these hearings.

Ms. Rubin. Thank you.

Mr. Brooks. Thank you very much.

Our next witness is Maudine R. Cooper, vice president of the Na-
tional Urban League, where she has worked since 1973. She holds a
B.A. degree, a law degree from Howard University, and has re-
ceived several awards for her achievements and outstanding contri-
butions to the community.

Ms. Cooper, we would accept your full statement for the record if
you would summarize your statement. We are delighted to have
you here and you can proceed.

STATEMENT OF MAUDINE R. COOPER, VICE PRESIDENT,
NATIONAL URBAN LEAGUE

Ms. Cooper. Thank you, Mr. Chairman.

I would like to echo my support for those who have preceded me
but to also add some additional comments on behalf of the Nation-
al Urban League.

First of all, again, as my predecessors have indicated, we want to
thank you for bringing this matter to the attention of not only the
Congressmen who will know of these hearings, but also of the press
and the media whom we have also been in close contact with,
trying to get our story out to the public.

Our concerns in reference to this OMB Circular A-122 are many
and diverse and of course again, have been echoed in large part by
some of my predecessors. As a civil rights advocate, however, we
are concerned about the first amendment and indeed the equal pro-
tection implications of the rule. As service delivery agents we are
worried about the inevitable damage to our ability to continue to
provide for the needs of our constituents. As a grant recipient sub-
ject to the constraints of section 501(c)(3) of the Internal Revenue
Code, we are puzzled by what has prompted this drastic and funda-
mental change in how we operate. And as a nonprofit organization,
we are baffled at the seeming contradiction between the adminis-
tration's professed desire to encourage the voluntary sector and
this effort to thwart any capability we might have had to respond
to that charge. And, certainly we share the generic concerns of all
those that will be affected by this ruling, both directly and indirect-
ly, such as the legal authority for the amendment, the inevitable
increase in paperwork, and the sure loss of our cost effectiveness.

We are indeed encouraged that OMB recognizes the gravity of
the proposed amendments to Circular A-122 and has chosen to
extend the comment period and to identify certain problem areas.

117

However, that does not provide solace to us and to many other na-
tional organizations. For example, and much of this information
comes from the press release that was just issued last week: OMB
still maintains that the present amendments will provide "uniform
enforceable rules." We would suggest to you that such enforceabil-
ity will require far more resources than are presently available as
each Government contracting officer attempts to examine percent-
age utilization of equipment and monitoring of activities of other
staff members who were paid part time by Government contracts.
Further OMB initially failed to inform us of the basis of their con-
cerns. Now, however, they indicate in the news release that there
has been "significant instances of improper diversion of Federal
funds for political advocacy." And of course much of that has been
refuted by this morning's testimony.

Personally, I have not read that study that was discussed but I
would suggest to you that on the basis of at least the Independent
Sector's reading of that study that OMB is clearly on the wrong
track and they ought to once again go back to, as you have said, to
the drawing board on this circular. Certainly the present amend-
ments do not pretend to address interpretations that OMB has thus
far given you nor should it, since the United States Code provides
clear penalities where misuse, misappropriation, misallocation,
commingling, et cetera, of Federal funds are concerned. To further
look at that quoted — I should say misquoted Comptroller's study —
the call for guidance in relation to the uniform cost principles does
not necessarily mean that an overly broad definition of "political
advocacy" is the appropriate route. Again that was underscored by
the Comptroller. The apparent key to OMB's concerns as publicly
articulated is the subsidization of lobbying by the Federal Govern-
ment. While we do not accept the notion that the amounts and
levels of subsidization is sufficient to warrant this meat-ax ap-
proach to cost allocations, let's for a moment just look at the sub-
stance of that notion and let us further assume that such subsidiza-
tion does in fact take place. Is it OMB's position therefore, that
subsidization by the Federal Government per se is wrong? Is it
OMB's position that subsidization of lobbying and any subsequent
support of ideologies to which some segments of the American
public object is wrong?

On this latter point, I might add that there would be few Federal
dollars spent on anything if there had to be a national vote on
every program area which the Federal Government now views as a
national priority. We would probably have limited military expend-
iture and aid to foreign governments. Chrysler Corp. would prob-
ably be a memory, and product price supports would be a past
practice.

Additionally, the release does indicate that contracts now in
force would not be affected. However, if final publication of the reg-
ulations is proposed for the summer, it seems unfair again and
overly burdensome for nonprofit groups to become prepared to ad-
dress these new requirements by October 1 for new contracting ac-
tivity.

Finally, the release does suggest to us that OMB is really prepar-
ing to provide substantial employment to a large number of unem-

118

ployed lawyers and a tremendous increase in the caseloads for the
presently overworked judicial system.

Volumes will emanate from judicial declarations of what consti-
tutes "standard marketing activities" or "substantial equipment
usage;" and whether an alleged violation was inadvertent or tech-
nical. But beyond the present proposed changes, there are still a
number of unanswered questions. For example, when does a Feder-
al contract dollar cease to carry that characteristic and become
some other kind of dollar excluded from the requirements of the
circular? Why the unequal treatment between Federal dollars flow-
ing between nonprofits and the Federal Government and dollars
flowing to State and local governments from the Federal Govern-
ment, and more importantly, their subcontactors and/or subgran-
tees? What this seems to suggest to us is that the primary target of
these regulations are indeed national organizations.

The National Urban League, therefore, strongly urges this Con-
gress, and indeed this committee, to recommend to this Congress to
use all of the resources at its disposal to effectuate the withdrawal
of these guidelines. Thank you.

[Ms. Cooper's prepared statement follows:]

119

Testimony of- •• •. . ••';■

MAUDINE R. COOPER

Vice President for Washington Operations

NATIONAL URBAN LEAGUE, INC.

Before the

House Committee on Government Operations

Subcommittee on Legislation and National Security

OMB PROPOSED CIRCULAR A-122

Room 2154

Rayburn House Office Building

Tuesday, March 1, 1983

Good morning. I am Maudine R. Cooper, Vice President for Washington
Operations of the National Urban League, My office serves as the
principal representative and voice in Washington for our network of
118 affiliates in 36 states and the District of Columbia. These local
offices provide services to the poor and minority community as the
primary means to achieve the Urban League ' s mandate to secure equal
opportunities for the disadvantaged in all sectors of our society.
We have also pursued this goal, since 1910, by seeking to bring about
changes in government and social systems which produce disparities
among groups of Americans.

I am particularly appreciative of this opportunity to appear be-
fore the Subcommittee today because our concerns about the Office of
Management and Budget's (OMB) proposed revision to Circular A-122,
"Cost Principles for Nonprofit Organizations," are many and diverse.
As civil rights advocates, we are concerned about the First Amendment

120

. and equal protection implications of the rule. As service delivery
agents, we are worried about the inevitable damage to our ability to
continue to provide for the needs of the disadvantaged. As a grant
recipient subject. to the constraints of Section 501(c)(3) of the
Internal Revenue Code, we are puzzled by what has prompted this drastic
and fundamental change in how we operate. And as a nonprofit organi-
zation, we are baffled at the seeming contradiction between the
Administration's professed desire to encourage the voluntary sector,
and this effort to thwart any capability we might have had to respond
to that charge. And certainly we share the generic concerns of all
those that will be affected by this ruling, both directly and indirectly,
such as the legal authority for the amendment, the inevitable increase
in paperwork, and the sure loss of cost-effectiveness. While we have
recently learned that 0MB intends to rewrite the proposal 1 , our concerns
are in no way assuaged. The agency has not specifically outlined which
provisions it will refashion, nor what form these modifications will take.
Nothing les.s than a $obal withdrawal can possibly correct a proposal that was
so ill-conceived at the start, and- poses such serious constitutional
threats in the future.

Before I proceed any further, let me state as emphatically as I
can: The National Urban League does not now, nor have we ever
supported the use of federal money for political advocacy. We have al-
ways understood and faithfully observed the political limitations- of
the Internal Revenue Service (IRS) — much like government workers are
constrained by the Hatch Act and your own employees are prohibited

121

from simultaneously working on your campaigns.' We have, asked for no •
special treatment, simply a reasonable and workable framework that
allows us to participate in the democratic process , foster the free flow
of ideas, and assure that the voice of the politically impotent is
heard.

Yet with the publication of the proposed revision of Circular A-122,
we are faced with a double barrel attack on these basic freedoms and
goals. On the one hand, a definition of "political advocacy" has been
proferred that is so overbroad as to forbid even the most innocuous
activities, and on the other, a cost allocation system would be imposed
that is so cumbersome that only the largest and most sophisticated con-
tractors would be able to comply with its provisions. In effect no
longer would we be able to communicate with our affiliates about pending
changes in civil rights laws, we would not be able to communicate with
members of the Congress about our experiences with programs you have
asked us to implement, and we would not be able to pool costs with the
government for copying machines, telephones, or office space. Both the
means and techniques that we employ- to further the goal of equal opportu-
nity would be banned.

This extraordinary action is ostensibly justified by OMb' s con-
tentions that there has been a "...diversion to political advocacy of
federal funds. . ,r" ".. .an abuse of the system and an uneconomical,
inefficient and inappropriate use of the public's resources," and that
this has created "...the appearance of federal support for particular
positions in public debate" and "...a distortion of the market place
of ideas..." To suggest that these unproven and erroneous assumptions

122

are a sufficient and compelling rationale truly strains credulity. I
am hard pressed to believe that if the Indianapolis Urban League, which
has been involved in employment and training for

concern about the proposed regulations governing the new Jobs Training
Partnership Act, anyone would suggest that this represents the govern-
ment's position or is considered lobbying. Rather their experience in
the field undoubtedly improves the discussion and assures that diverse
non-governmental input is considered. Again, the IRS does a credible
job of ensuring the appropriate use of the public's money, granting the

of 501(c) (3) status only to those charitable organizations
fulfilling obligations that the government has deemed necessary, but is
unable to deliver itself. In our case, that obligation is the delivery
of needed services and definitely not "diversion" to so-called advocacy.
As required by law, we keep federal grant monies separate from the con-
tributions received for general operations. Very simply, we see no evidence
that there is any need for the type of changes suggested by OMB.
Present Law is Sufficient

The OMB notice states ..."the diversion to political advocacy of
federal funds, and of equipment procured with and personnel compensated
by federal funds, 'is an abuse of the system and an uneconomical,
inefficient and inappropriate use of the public's resources." (48 FR
3346). rnat said ,. ^ notice proceeds ^ ^^ ^ ^^ ^^.^
the obvious implication being that the currently proposed amendment is
the only effective and efficient way to stem this diversion. However, OMB
has supplied no. evidence of the abuse upon which this proposal is allegedly

based. Xt does not enlighten the affected class as to why current legislative
Provisions axe in SU f f i cient in barring ^ ^ ^^ ^ ^ ^^

123

advocacy activities. Indeed the notice implies that there are currently
no means by which ta do this, and that is not the case.

Congress has' passed specific legislation in instances where it
wanted to restrict the very use of federal funds. Congressional appropria-
tions for the Departments of Labor, Education, and Health and Human Services
include language that prohibits the use of federal contract or grant
funds "to pay the salary or expenses of any grant or contract recipient
or agent acting for such recipient to engage in any activity designed to
influence legislation or appropriations pending before Congress." (P.L.
97-92, Sec. 101(a)(2) incorporating by reference H.R. 4560, 97th Congress;
see also P.L. 96-536, Sec. 101(a)(4) and P.L. 96-123, Sec. 101(g)
incorporating by reference H.R. 4389, 96th Congress; and P.L. 95-480,
Sec. 407)* _...:

Congress has set other statutory limits, such as the one placed
on the Legal Services Corporation. The Legal Services Corporation Act,
42 U.S.C. 2996 f (b)(1) and (b)(2), prohibits the use of grant and con-
tract money received by the Legal Services. Corporation from being used for
unauthorized lobbying and political activities.

In addition, the Internal Revenue Service (IRS) reaches virtually
all tax-exempt organizations that receive federal grants and contracts
under Sec. 501(c)(3) of the Internal Revenue Code (IRC). Sec. 501(c)(3)
prohibits tax exempt organizations from engaging in "substantial" lobbying
activities; or permits them to elect to be subject to specific expendi-
ture limits for such activities. Failure to comply with these pro-

*Congressional Research Service, Library of Congress, "Analysis of Potential
Legal Issues," February 18, 1982.

20-644 0-83 9

124

visions ultimately results in the loss of tax exempt status.

Congress has made it quite clear under what circumstances it wishes
to restrict the use of federal funds. It has enacted no sweeping re-
strictions such as the one proposed by OMB.
0MB Authority

Given the traditional oversight role that the IRS has played coupled
with the constitutional separation of duties between the executive and legis-
lative branches of government, there is certainly a question as to whether
the OMB has the authority to issue such a revision. Certainly the agency
has a role to play in the management, coordination, and efficiency of
government grants and contracts, but this rule far exceeds these admini-
strative goals. Without any demonstration of fraud or abuse, OMB has taken
it upon itself to promulgate a rule that treads, on the field of legis-
lating. The Congress, while recognizing the issue and taking steps to
address it, has never seen fit to delegate its authority in this area
to any executive agency. Further, the revision is so profound that it will
generate fundamental changes, previously only enacted through statutes.
In effect, OMB is dictating to the Congress who can and cannot provide
you with the statistics, information, and experience gleaned from the imple-
mentation of the programs and policies. you have enacted. We deliver the
services, conduct the- studies, and obey the laws, yet this rule will prevent
us from reporting back to you on their impact. It would seem to us that OMB
has trespassed not only on the Congress' execlusive lawmaking power, but also
on your oversight responsibilities and desire for feedback!; .information and
advice. This apparent arrogation of authority is made even more egregious
when the burden on First Amendment rights is examined.

125

First Amendment Rights

Notwithstanding, OMB' s failure to illustrate abuse sufficient
to warrant the currently proposed mammoth changes, its intention to do so
is clearly unconstitutional and an irresponsible and irrational infringe-
ment upon First Amendment rights.

OMB states that the current proposal "will promote the First Amend-
ment value that a person can freely speak, or refrain from speaking on
political matters ." and that it "is designed to balance the First
Amendment rights of federal grantees and contractors with the -legitimate
governmental interests of ensuring that the government does not sub-
sidize, directly or indirectly the political advocacy activities of
private groups or institutions." The mere statement of that principle
neither dictates the confines of this specific proposal nor deems its
inherent restrictions legally and constitutionally sound.

In order for the proposed amendment to pass constitutional muster,
it must survive two exacting criteria. (1) The rule must forward a
compelling governmental interest. Bates v. City of Little Rock, 361
U.S. 516, 524 (1960), and (2) the rule must be drawn narrowly so as
not to infringe upon protected rights, Buckley v. Valeo , 424 U.S. 1
(1976) . This proposal survives neither test.

The OMB notice states that its interest is in prohibiting the
direct or indirect subsidizing of political advocacy activities with
federal funds. Yet no such interest in making the sweeping restrictions
as proposed has ever been expressed by Congress in any legislation or
by the President in any Executive Order. Furthermore, the notice was

issued with at the benefit of hearings and without any record of evidence
or findings.

The fact is that the Supreme Court has often objected to the

126

government's preclusion .of certain types of speech on the basis of its
content. In First National Bank v. Bellotti , 435 U.S. 765 (1978), the
Court recognized the importance of advocacy and stated that "... the
fact that advocacy may persuade ... is hardly a reason to suppress it:
the constitution protects expression which is eloquent no less than that
which is unconvincing." Further, the Court has emphatically objected to
discrimination against persuasive ageech by delcaring that "...above
all else, the First Amendment means that government has no power to
restricts expression because of its message, its ideas, its subject
matter, or its content ."* More importantly, the Court and Congress have
actually gone beyond protecting advocacy they have recognized and .
encouraged- the need for- advocacy in the public interest. The Con^.. .
gressional Research Service reports that "The Supreme Court has noted
as a general concept our profound national commitment to the principles
that debate on public issues should be uninhibited, robust, and wide
open (New York Times v. Sullivan , 376 U.S. 254, 270 (1964)), and has
specifically upheld legislation to use public money to facilitate and
enlarge public discussion ... ( Buckley v. Valeo , supra, at 92-93). The
legislation adopted by Congress which was upheld by the Court in that
case provided for public tax revenues to be distributed to private
political campaigns to directly subsidize the political advocacy of
presidential candidates."

0MB attempts to justify the government's interest in promulgating
this rule by asserting that "This proposal will ensure, that taxpayers
are not required, directly or indirectly, 'to contribute to the sup-
port of an ideological cause (they) may oppose'." This rationale.

Comments of ACLU, February 24, 1983, p. 9

127

however, is directly rebutted by Buckley v. Valeo , which affirmed the
use of federal funds for the financing of presidential political
campaigns. The Court in Buckley recognized that no congressional
apportionments are enacted to the satisfaction of all taxpayers and
..found the use of "public money to facilitate and enlarge public dis-
cussion ... furthers, not abridges, ...First Amendment values." 424
U.S. et. 92-93.

In the absence of existing evidence of abuse and recognizing the
legislative and judicial history of the treatment of advocacy, OMB
has plainly failed to exhibit any compelling governmental interest in
promulgating the present rule.

The second test the rule must pass concerns its precision in
dealing with the stated problem and the rule must be drawn narrowly
to avoid reaching and infringing upon other protected rights. This
test the rule fails miserably.

Under current rules, a federal contract employee who spends 10%
of his time on political advocacy activities could change the federal
contract for 90% of his compensation as long as athe other 10% was paid
for with non-government monies. OMB's approach not only affects that
employee's political activities but also reaches his non-political
activities; for OMB would disallow reimbursement for the 90% of the
employee's time spent on authorized contract work. Given that
appropriate legislation has already focused on the abuse of funds and

that A-122 s present cost allocation system dictates that federal funds
be used only for federally authorized activity, there is no justifi-
cation whatsoever for the attempt to totally restrict the activities,

128 *

use of equipment, machinery or office space, simply because they are
connected at some point in time with political advocacy. It is
ludicrous to assume that an organization that delivers employment
training services' for the government would not feel obligated in some
fashion to advocate for the needs and benefits of the clients it
served.

On the other hand, OMB's treatment of the definition of political
advocacy is equally egregious. It has defined the term so that it
covers virtually every form of expression possible between a nonprofit
organization and government. The First Amendment's requirement of
narrow construction where governmental restrictions on speech are
concerned demands that such restrictions not be crippled by a vagueness
that necessarily leaves violation to the prejudicial determination of
government officials. But that is exactly what this open ended
definition of political advocacy constitutes.

The combination of the overbroad application of the new cost-
disallowance rule and the vagueness of the term political advocacy
would necessarily restrict non-political activities; Neither .non-:
prof its -nor government monitors would have sufficient guidelines to
determine violative activity. The rule would encourage nonprofits
to curb all activities for fear that some conversation would be deemed
an "attempt to influence" a legislative body or that some employer's
membership in an advocacy organization would be considered the re-
sult of the employer's inducement.

Finally, the rule if implemented would clearly and unfairly discrimi-
nate against certain nonprofits. First, the proposal would require

129

that organizations' "separate their grant or contract activity from their
political activity." While that appears a simple edict, it in essence
requires that nonprofit organizations finance separate facilities,
equipment, and staff. Not only is this duplication a direct contra-
diction of the rules' stated preoccupation with "efficiency" of effort,
but it also makes doubtful the alleged concern with a "balance" of in-
dividual and governmental interests. Obviously, the larger and more
financially secure organizations are in a better position to set up
separate operations than smaller organizations. Thus it is actually
the small nonprofits that will be forced to choose between service
delivery and advocacy while organizations with the largest budgets
are free to continue the exercise of First Amendment rights.

Unlike the IRC, which governs the tax exempt status of federal
contractors, this rule would deny organizations the opportunity of
self-defense lobbying. Self-defense lobbying allows groups to engage
in political advocacy for the purpose of defending their own existence,
duties, or power. This right will be virtually foreclosed to those
organizations that simply cannot afford a duplicate staff to undertake
a defense.

Second, the notice makes a clear distinction between organizations
that advocate on their own initiative and those that advocate at the
request of the government. The Amendment specifically excepts
organizations that supply "advice or assistance" to the government
pursuant to the government's request from the definition of "political
advocacy." Consequently one set of groups will have the opportunity
to influence the legislative process while those uninvited will ;have no
forunw

130

The legal and administrative shortcomings of this proposal force
us to question the sincerity and motivation of the authors of the
circular. If their goal is truly the efficient and effective adminis-
tration of federal funds, why require the duplication of effort it en-
tails and structure such sweeping changes that would necessitate an
infinitely more costly system of federal monitoring? If 0MB is actually
concerned with the preservation and balance of individual First

Amendment rights and governmental interests, why then do they
blatantly propose to dictate the use of an organization's own funds and
deny reimbursement for non-political activity? Why was there so little
attention paid to existing congressional intent which in no way "■'...
indicates a desire to so severely curtail the activities of nonprofits?
Why did 0MB neglect to focus and fcaiibr its proposal narrowly enough -
to avoid the constitutional problems of overbreadth and vagueness.
Finally, what fairness is reflected in 0MB 's intention to clearly
place political advocacy in the hands of financially robust organizations
as opposed to those whose budgets will not withstand a total duplication
of effort.
Impact on Small Organizations

By broadening the definition of advocacy, 0MB tramRj.es on daily
and vital community outreach activities of the National Urban League
on behalf of the poor and disadvantaged. A random survey of the
League's community acitivities in its 118 affiliate cities reveals
the breadth of the 0MB Circular and the jeopardy it holds for federal con-
tract services needed by our constituents.

131

In EDUCATION. . .

The Baltimore Urban League actively participates in the decision-
making process of the Baltimore public school system — a system in
which black comprise approximately 60 percent of the enrollment. The
Baltimore Urban League is asked to join a search committee established
to fill the position for a new school superintendent. Additionally,
the Baltimore Urban League represents minority interest-through its
membership on three key school board advisory panels on transportation,
absenteism and school budgets. The 0MB Circular would prevent this
land of activity.

In EMPLOYMENT. . .

The Nashville Urban League negotiates with a major area employer
regarding the company's discriminatory hiring practices. Aided by
media interviews and public awareness activities, and in conjunction
with the local branch office of the Equal Employment Opportunity
Commission, the League is able to improve minority access to the
company's personnel divisions. The 0MB Circular would deter this
kind of activity.

In HOUSING. . .

The Rochester Urban League responds to the growing charges of
racial steering in real estate by launching its own investigations
A.n extensive research report results, and is circulated widely in the
local area. Public awareness efforts and coordination help lead to a
voluntary agreement with the local Real Estate Board. The 0MB Circular

132

would deter this kind of activity. In Social Services, a region-wide
effort is made to educate the minority community on the problem of
teenage pregnancy. In conjunction with local churches, school and
welfare systems, the Urban League begins to initiate a major awareness
campaign at the grass roots level. The OMB Circular would deter this
kind of activity.

What these samples illustrate is how vitally the Urban League
is involved in the day to day concerns of this nation's poor and
minority population. Jeopardizing that network jeopardizes our
country's commitment to the disadvantaged.

What makes the Urban League's message important is that when
the Urban League speaks; . it -speaks with experience — the experience
we've gained from over 72 years of grass roots program operations.
To quiet that voice is to waste a time-tested resource that functions
efficiently and cost-effectively.

Administration's Volunteerism Initiative

These inevitable changes in service delivery mechanisms will also,
very simply, choke off any ability we might have had to respond to the
President's desire to expand the role of the voluntary sector in
addressing the needs of communities. As a participant in the
President's Task Force on Private Sector Initiatives, I am very
familiar with what Mr. Reagan was trying to foster. Among other things,
the group was charged with the responsibility to "... help encourage
more private contributions of both human and financial resources to
the progress of America's communities." More specifically we were

133

to recommend means to "identify and eliminate impediments to private
initiatives" and "explore and improve incentives used to encourage
private initiative." Ironically, now we are presented with a revision
in Circular A-122' which will not only erect new impediments to our
contributions, but will also tie our hands and make it virtually
impossible to maintain our existing level of service, much less any
increase.

This contradiction cannot be explained away by cost considerations
either. In fact, the revision will impose new expenses on the govern-
ment. We have traditionally been able to share the costs of equipment;
now the contract will have to assume the full price of telephones,
typewriters, copying machines, and any other items used in daily office
operations. This is hardly an efficient use of the public's assets,
both in money and time. Cumbersome bookkeeping procedures will be
necessary, which will only serve to divert already limited resources
from direct service delivery. Rather than less bureaucracy, less red
tape, and less regulation, both the government and the contractor will
be faced with increasingly complex and uncalled-for procedures.

Enforcement

Because OMB has offered no concrete guidelines for enforcement
of the new Circular, one is lead to question how such a sweeping edict
could be enforced. The breadth of the regulation will undoubtedly
lead to one of two unreasonable extremes — either so few agencies
will be examined that it will lead to charges of harassment, or so
many will be reviewed that auditors will be unable to carry out any
of their other duties. The spectre of abuse and intimidation

134

is raised when such seemingly unlimited and ambiguous authority is granted
to any agency.

Further, the rules suggest that in the pursuit of alleged vio-
lations, OMB would have access to all of an agency's accounts and
personnel. There are a number of other unanswered questions pertaining
to enforcement, such as: How will OMB determine if an employee paid
with grant monies was "induced" to engage in political activities?
How will they determine what constitutes five percent of office space
and if it was devoted to political advocacy? And why is five percent
a valid benchmark? Will there be a standardized procedure for taking
action against a contractor who has been found in violations?

Conclusion

For over 70 years, the National Urban League has strived to
achieve equal opportunity for blacks, the poor and others whose voices
are so often neglected. For approximately 10 years, we have been
assisted in these efforts through the acquisition of federal con-
tracts which provide needed services to the poor — services such as
job training, housing counseling, and educational assistance. We have
been awarded these contracts because we have a track record which
shows that we do an efficient and cost-effective, and above all,
needed job.

Now it seems without reason or validity that our application of
federal support is being questioned. We do not accept this sudden
reversal and skepticism, and therefore submit that OMB ' s proposed
revision is both vincessary and unconstitutional. For a certainty,
it dramatizes a disparity in the actions versus -the words of an
administration which professes to be an advocate of greater voluntarism
and community efforts. '

Nevertheless, the National Urban League has every intention of
continuing to provide direct services to minorities and the poor — as
we've done for seven decades. Furthermore, we believe that in order
to provide these services we must continue to advocate why they are
so greatly needed by those who continue to be left out of the economic
mainstream.

135

Mr. Brooks. Thank you very much and now I might ask you one
question, if you would be willing.

Ms. Cooper. Certainly.

Mr. Brooks. If local chapters of organizations such as yours are
compelled to duplicate facilities and personnel in order to comply
with an OMB proposal, do you foresee an increase in the cost of
delivering services, both to the Federal Government and to others,
to the recipients?

Ms. Cooper. The National Urban League has 118 affiliates and
in some of those very small affiliates, there would be a choice be-
tween Federal dollars and advocacy, point blank. Some of those af-
filiates have staffs of two and three people. We have a few large
ones, Chicago, San Francisco, and so, but the average size of those
118 is five people — some below five and some above five, and those
choices would be very hard to defend to the community that they
serve.

Mr. Brooks. I want to thank you very much. I appreciate your
coming down and contributng to this hearing.

Now, our next witness is Thomas S. Deans, the executive director
of the Appalachian Mountain Club of Boston, Mass. He has been a
member of the staff of AMC since 1964 and has served as executive
director since 1975. He has served on the Appalachian Scenic
Trails Advisory Council, the Standards Committee, and the board
of directors of Citizens for America's Endangered Wilderness. He is
also active in the Environmental Defense Fund, National Trails
Council, Sierra Club, and the Wilderness Society.

He is a graduate of the University of Maine, and he lives in In-
tervale, N.H. Welcome, Mr. Deans.

STATEMENT OF THOMAS S. DEANS, EXECUTIVE DIRECTOR,
APPALACHIAN MOUNTAIN CLUB

Mr. Deans. Thank you, Mr. Chairman. I would ask that all of my
remarks be entered as part of the record.

Mr. Brooks. Without objection, so ordered, and the gentleman
will proceed.

Mr. Deans. Mr. Chairman, since its founding in 1876, the Appa-
lachian Mountain Club has been a leader in the establishment and
management of public and private lands and facilities for outdoor
recreation. We pride ourselves in our relationship, our working re-
lationship with many State, Federal and local agencies and the
public service it has provided through those partnerships.

We could give numerous examples of our work with these agen-
cies, and one I might add, Mr. Chairman, we are working with the
Texas Trail Association, a good group in your State. We are ap-
palled that President Reagan on one hand calls for improving the
public-private partnerships, and for strengthening the volunteer
sector, and the State and local agencies so that they can assume a
greater role in the delivery of services, and at the same time pro-
mulgates administrative regulations that to us appear to stifle and
even prohibit some of those partnerships. With Independent Sector
and many of the other groups we work with, we have worked hard
over the last couple of years to see that these partnerships are
strengthened and improved. In fact, the Appalachian Mountain

136

Club recently received a Richard King Mellon Foundation grant to
take our model of partnership out to other parts of the country to
help strengthen the relationship that our voluntary groups can
have with their State counterparts and Federal counterparts.

Mr. Chairman, I was surprised to hear this morning from Mr.
Wright that it was small nonprofit voluntary groups that have
problems with living up to the current regulations. He has never
talked, or no one from OMB has ever talked to anyone that I am
aware of in those small nonprofit, volunteer groups and I agree
with you and I appreciate the comments from you and the other
members of the subcommittee to the representatives from OMB
about getting out and talking to those groups that will be affected
by the regulations and changes that they are talking about.

Mr. Chairman, the voluntary groups of this country are working
hard to see that their role is strengthened and that they do their
part in carrying out the public service obligations that we all feel,
and we look forward to continuing that. We do feel that the
changes that were suggested to Circular A-122 would run counter
to this thing that we are all working together on. Thank you very
much, Mr. Chairman. .

[Mr. Deans' prepared statement follows:]

137

STATEMENT OF THOMAS S. DEANS
EXECUTIVE DIRECTOR OF THE APPALACHIAN MOUNTAIN CLUB

BEFORE THE SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY
OF THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS

ON OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-122
Cost Principles for Nonprofit Organizations

March 1, 1983

Mr. Chairman, members of the Subcommittee on Legislation and
National Security, I am Thomas S. Deans of Intervale, New
Hampshire, Executive Director of the Appalachian Mountain Club.

The Appalachian Mountain Club is an association of 28,000
volunteers, principally in the northeastern states, organized to
establish and manage protected land areas and waterways to
preserve their natural beauty and integrity, and provide
appropriate public access. To accomplish this objective, we
provide recreational activities, educational programs and
supporting facilities, with increased emphasis on urban and
suburban areas. We provide the volunteer organizational
structure to support this purpose and make our organizational
expertise available to others.

On behalf of the Appalachian Mountain Club I appear today to
request that this committee join with us in urging the
Administration to withdraw OMB Circular A-122.

The revisions are intended to prevent the use, directly and
indirectly, of federal funds for political advocacy by grantees
and contractors. The effect of the circular would be to prohibit
the use for advocacy on non-federal funds as well.

In addition, prohibited "political advocacy" activities
would be greatly expanded far beyond any restrictions currently
imposed by Congress even to include "influence [of] governmental
decisions through communications with any member or employee of a
legislative body, or with any governmental official or employee
who may participate in the decision-making process." [para.
33(b)(4), emphasis added].

138

For instance, communications with a federal agency
concerning proposed regulations (or, indeed, submission of
comments to OMB itself regarding future amendments to Circular
A-122), or communications with a state or municipal planning
commission concerning a proposed land use plan would equally
constitute "political advocacy. "

Since its founding in 1876, The Appalachian Mountain Club
has been a leader in the establishment and management of public
lands and facilities for outdoor non-motorized recreation. It
played a dominant role in the formation of both the U. S. Forest
Service and the National Park Service, the enactment of the
National Scenic Trails Act, the establishment of the 2200-mile
Appalachian Trail and both state and national legislation
concerned with the wise stewardship of our outdoor heritage.

The special relationship we have built over the years with
the White Mountain National Forest in New Hampshire is a model of
public-private partnerships, so much so that the R. K. Mellon
Foundation of Pittsburgh has underwritten a project to replicate
that relationship in all parts of the country with other
nonprofit organizations and federal and state agencies. The U.
S. Forest Service has contributed a staff person and his expenses
to that project in support of the partnership. Under this grant
from a private foundation we currently have pilot projects on
public lands in the states of Florida, Georgia, New Mexico,
Colorado, Washington, Pennsylvania, Ohio and two' in California.
Response to this innovative project has been overwhelming. As an
example, the Albuquerque New Mexico, project involves the U. S.
Forest Service, the U. S. Soil Conservation Service, the
Albuquerque Parks and Recreation Department, and a coalition of
the New Mexico Ski Touring Club, the volunteer Open Space Task
Force, the New Mexico Mountain Club, the Audubon Society, the
local chapter of the Sierra Club and other individual volunteers.

139

We, like many other volunteer environmental/conservation
nonprofit organizations, are seriously threatened by the proposed
modifications in OMB Circular A-122. We pride ourselves in our
work with and for state and federal agencies, especially their
staff, in order to ensure that their guidelines, rules,
administrative procedures, etc. are "ecologically sound, socially
responsible and economically feasible." And we from time to time
are reimbursed for on-the-ground services we provide these
agencies. For instance, the Supervisor of the White Mountain
National Forest has worked with our assistance preparing unit
plans for the Forest, and the A.M.C. maintains some 350 miles of
hiking trails and shelters on public lands under a cooperative
agreement with the Forest Service.

If the OMB modifications were adopted, this mutually
advantageous arrangement could become illegal, and present
federal budget restrictions would prevent the Forest Service from
providing these public services.

We could give numerous other examples of work with all sorts
of state and federal agencies helping to manage outdoor
recreational opportunities, and the devastation such proposed
regulations would cause. We are appalled that President Reagan,
on the one hand calls for improving public-private partnerships,
for strengthening the volunteer sector and state and local
agencies so they can assume a greater responsibility for the
delivery of public services heretofor provided by the federal
government, and at the same time, promulgates administrative
regulations that stifle, even prohibit, those same partnerships!

We urge you and your staff to make every effort to ensure
that such potentially destructive regulations never take effect.
We ask for your help in preserving those volunteer organizations
so unique to our nation and that benefit both the individual
states and the whole country.

Thank you for your attention.

20-644 0—83 10

140

Mr. Brooks. Thank you, and I have one question. How would
this proposal affect nonprofit organizations like your own from de-
livering services at the local level?

Mr. Deans. Mr. Chairman, I noticed just a day or so ago in the
Federal budget proposal for 1984 for the Department of Agriculture
that that agency alone is counting on 50,000 volunteers to contrib-
ute $22 million worth of conservation work in 1984. To do that they
are going to have to work in partnership and unison with the Fed-
eral agencies, and there will be some sharing of services. I think if
the administration is going to accomplish some of their own goals,
this program here will run counter to that at the local level with
the small trail groups that we find all over this country.

Mr. Brooks. I thank you, Mr. Deans.

Mr. Deans. Thank you, Mr. Chairman.

Mr. Brooks. Our next witness is Paul A. Kerschner, associate di-
rector of the division of legislation of the American Association of
Retired Persons. Prior to joining the staff of AARP, he was a direc-
tor of the community programs of the Gerontology Center at the
University of Southern California. He also worked for the Social
Security Administration and the Governor's Commission on Nurs-
ing Homes in Maryland.

He has a masters and doctorate in public administration from
the University of Southern California. We will be delighted to put
your remarks in the record and to hear your comments, Mr.
Kerschner.

STATEMENT OF PAUL A. KERSCHNER, ASSOCIATE DIRECTOR,
DIVISION OF LEGISLATION, AMERICAN ASSOCIATION OF RE-
TIRED PERSONS

Mr. Kerschner. My legitimacy, Mr. Chairman, is that my wife
was born in Borger, Tex.

Mr. Brooks. Borger, Tex. Wonderful.

Mr. Kerschner. Mr. Chairman, the American Association of Re-
tired Persons feels that issues of left and right ideology should be
fought in the hills of New Hampshire, not promulgated in the dark
caves of the Office of Management and Budget.

Let me stress at the outset that the American Association of Re-
tired Persons fully supports the objective denying use of Federal
grant funds for political advocacy. We have never done that, and
will never do so. Our Federal and State legislative departments are
entirely funded from association sources. The cost of copying, per-
sonnel, postage and any other activity related to political advocacy
is paid exclusively from AARP funds.

So broad is the scope of these proposed regulations, however, and
so detailed is their specifications, that one must wonder if the de-
fined goal is the real one. Is the goal truly to prohibit use of Feder-
al funds for political advocacy, or is it to limit political advocacy
itself? Or is the goal perhaps to establish a mechanism for denying
funds to certain programs Congress has mandated, but which the
administration disfavors?

Such questions of motivation are inevitably raised when one ana-
lyzes the proposed sanctions against the perceived evil. The pro-
posed regulations are grossly disproportionate. They are disruptive

141

and potentially mischievous. They are possibly unconstitutional
and they are clearly a usurpation of congressional authority.

Existing laws established by Congress already address the basic
issues raised by these regulations. The Internal Revenue Code sets
certain limits on lobbying expenditures for private nonprofit orga-
nizations. Congress has in the past, where it has deemed appropri-
ate, proscribed certain political advocacy activities as part of its ap-
propriations process.

While we claim no special competence to judge the constitutional
issues involved, it appears to us that these proposed regulations
exceed OMB's statutory authority. Surely OMB has legal authority
to develop regulations to implement laws enacted by Congress, but
it has no basis for engaging in lawmaking on its own. A legal
memorandum from the Washington law firm of Caplin & Drysdale
states, and I quote:

A strong legal argument can be made that OMB has no statutory authority for
the proposed restrictions on lobbying and other participation by nonprofit grantees
in the governmental decisionmaking process.

To illustrate the disruptive and potentially mischievous nature of
the proposed regulations, consider their restrictions on building uti-
lization. Under the proposal, Federal reimbursement for the costs
of building and office space would be disallowed when 5 percent or
more of the office space is devoted to political activity, even if these
costs are carefully monitored and properly allocated.

If an organization has for example, as we do, a title V Senior
Community Service Employment project, housed in the same build-
ing with a legislative advocacy unit, one activity or the other might
have to move into another building. How such disruption and in-
creased costs help to achieve the defined goal escapes us, Mr.
Chairman.

Similarly, the proposed regulations would deny reimbursement
for an individual employee's administrative costs for a Federal
grant program, if that employee devoted any time to political advo-
cacy, even if those costs are carefully monitored and properly allo-
cated. One reason we and other grant administrators are able to
keep administrative costs down is the part-time assignment of ex-
perienced managers to grant supervision. Beyond the increased
costs such a regulation would impose, it also raises — according to
Caplin & Drysdale — some questions about first amendment rights.

That which will be most troublesome to this committee — and all
Members of Congress, we suspect — is the greatly expanded defini-
tion the proposed regulations give to political advocacy. They
would not only include lobbying in the classical sense, but would
also apply to public interest litigation as a friend of the court or
any effort to influence Government decisions through communica-
tion with any member or employee of a legislative body, or with
any governmental official or employee who may participate in the
decisionmaking process.

Strictly enforced, such a restriction would appear to preclude
any grant administrator, or grant participant, from talking with a
Member of Congress, or a congressional staff member.

142

Restricting such communication could deny Congress its legiti-
mate oversight responsibility while further eroding first amend-
ment rights.

Because of these reasons, and others, AARP urges your commit-
tee to suspend the effective date of the proposed regulations, allow-
ing Congress sufficient time to review all the legal, administrative
and financial issues involved.

We recommend that followup hearings be held to determine
whether, in fact, there is a problem under current law and admin-
istrative policies. If there is, then appropriate congressional com-
mittees should consider ways to remedy the problem through proc-
esses that are both constitutional and cost efficient.

Thank you, Mr. Chairman.

Mr. Brooks. Thank you very much for coming down and give
your wife my best. We are delighted to have you here. We appreci-
ate your contribution.

[Mr. Kerschner's prepared statement follows:]

143

STATEMENT
OF THE
AMERICAN ASSOCIATION OF RETIRED PERSONS
PRESENTED BY
PAUL A. KERSCHNER

Mr. Chairman, members of the committee.

We applaud your committee for conducting these early hearings
on the proposed 0MB rules relating to federal grants and political
advocacy.

By defining a noble goal, but prescribing a faulty means of
achieving that goal, they confront you— and all grant administra-
tors—with an interesting dilemma. To oppose the rules because of
the faulty means runs the risk of being misunderstood.

So let me stress at the outset that the American Association
of Retired Persons fully supports the objective of denying use of
federal grant funds for political advocacy. We have never done
that, and would never do so. Our federal and state legislative
departments are entirely funded from Association sources. The
cost of copying, personnel, postage and any other activity related
to political advocacy is paid exclusively with AARP funds.

So broad is the scope of these proposed regulations, however,

and so detailed is their specifications that one must wonder if the
defined goal is the real one. Is the goal truly to prohibit use of
federal funds for political advocacy, or is it to limit political
advocacy itself. Or is the goal, perhaps, to establish a mechanism
for denying funds to certain programs Congress has mandcted, but
which the Administration disfavors?

144

Such questions of motivation are inevitably raised when one
analyzes the proposed sanctions against the perceived evil. The
proposed regulations are grossly disproportionate. They are
disruptive and potentially mischievous. They are possibly
unconstitutional. And they are clearly a usurpation of Congressional
authority.

Existing laws established by Congress already address the basic
issue raised by these regulations. The Internal Revenue Code sets
certain limits on lobbying expenditures for private, non-profit
organizations. And Congress has in the past, where it has deemed
appropriate, proscribed certain political advocacy activities as
part of its appropriations process.

While we claim no special competence to judge the constitutional
issues involved, it appears to us that these proposed regulations
exceed OMB's statutory authority. Surely 0MB has legal authority
to develop regulations to implement laws enacted by Congress, but
it has no basis for engaging in lawmaking on its own.

• -

A legal memorandum from the Washington law firm of Caplin &
Drysdale states: "...a strong legal argument can be made that 0MB
has no statutory authority for the proposed restrictions on lobbying
and other participation by non-profit grantees in the governmental
decision-making process."

To illustrate the disruptive and potentially mischievous nature
of the proposed regulations, consider their restrictions on building
utilization. Under the proposal, federal reimbursement for the costs
of buildings and office space would be disallowed when five percent
or more of the office space is devoted to political activity, even
if those costs are carefully monitored and properly allocated.

145

If an organization has, for example, a Title V Senior Community
Service Employment project housed in the same building with a
legislative advocacy unit, one activity or the other might have to
move into another building. How such disruption and increased costs
could help achieve the defined goal escapes us.

Similarly, the proposed regulations would deny reimbursement
for an individual employee's administrative costs for a federal
grant program if that employee devoted any time to political
advocacy, even if those costs are also carefully monitored and
properly allocated. One reason we and other grant administrators
are able to keep administrative costs down is the part-time
assignment of experienced managers to grant supervision. Beyond
the increased costs such a regulation would impose, it also raises-
according to Caplin & Drysdale— some questions about First Amendment
rights.

That which will be most troublesome to this committee— and all
members of Congress—, we suspect, is the greatly expanded definition
the proposed regulations give to "political advocacy."

They would not only include lobbying in the classical sense, but
would also apply to public interest litigation as a friend of the
court or any effort "to influence government decisions through
communication with any member or employee of a legislative body, or
with any governmental official or employee who may participate in
the decision-making process."

Strictly enforced, such a restriction would appear to preclude
any grant administrator, or grant participant, from talking with a
member of Congress or a Congressional staff member.

146

Restricting such communication could deny Congress its
legitimate oversight responsibility while further eroding First
Amendment rights.

Because of these reasons and others, AARP urges your committee
to suspend the effective date of the proposed regulations, allowing'
Congress sufficient time to review all of the legal, administrative
and financial issues involved.

We recommend that follow-up hearings be held to determine
whether, in fact, there is a problem under current laws and
administrative policies. If there is, then appropriate Congressional
committees should consider ways to remedy the problem through processes
that are both constitutional and cost-efficient.

147

Mr. Brooks. I suggest that we hear Mr. Botwinick from the Cor-
coran Gallery, and then we break for lunch and come back at 1:30
and continue to hear the remainder of our witnesses. If this is ac-
ceptable, I believe that is the best way to operate.

Mr. Botwinick is director and chief executive officer of the Corco-
ran Gallery and the School of Art here in Washington. He repre-
sents the American Association of Museums as a member of their
executive council.

He holds a B.A. from Rutgers College and an M.A. from Columbia,
both degrees in the arts area. After working as a college instructor,
he held positions with several museums. In addition he is active in
a number of professional organizations.

We are glad to have you here.

STATEMENT OF MICHAEL BOTWINICK, DIRECTOR, CORCORAN
GALLERY OF ART, WASHINGTON, D.C.

Mr. Botwinick. Thank you, Mr. Chairman, I will try to be mind-
ful of the fact that everybody would like to get to a break and with
your permission summarize briefly my remarks.

Mr. Brooks. Without objection, your statement will be made a
part of the record and we will hear your comments.

Mr. Botwinick. The museum community is deeply concerned
about the impact of these proposals on our capacity to function ef-
fectively in our communities and States, and to assure our long-
term capacity to preserve precious cultural resources for the
Nation.

Among the many major philosophical and legal problems that
might be raised by the regulations, I would like to cite three prob-
lems of a more practical nature that we view as unworkable and in
many senses unjust.

As the proposed regulation is now written, there is no balance
struck between the percentage of support an institution receives
from the Federal Government and the amount of advocacy it un-
dertakes or how these regulations would affect that. If a director or
curator receives 5 percent of his salary through the overhead provi-
sion of a Federal grant, the regulation would disqualify the other
95 percent of his time for use in any type of advocacy.

Second, the proposed regulation expands the definition of advoca-
cy beyond legislative activity to include commenting on regulations
and supporting legal actions with implications for an entire class of
organization. It also expands the prohibition against advocacy to
include activities undertaken at the State and local level. In this
last regard the regulation is particularly unsound. Both the nature
of Federal support to museums and the legal obligations of muse-
ums as public trusts regulated by the States make this change un-
tenable for most museums and most of the cultural community.

Last, the inclusion of indirect or overhead costs, that are part of
a Federal grant or contract as triggers in the application of these
rules, would be incapacitating for most nonprofit organizations,
particularly museums.

Federal support represents a very small percentage of any muse-
um's budget. In the aggregate we estimate that it represents less
than 5 percent of the total of museum operating budgets through-

148

out the country. The portion of Federal support that goes toward
overhead is probably less than 1 percent, given the generally low
indirect cost rates that we all have negotiated with our Federal
agencies.

For this small percentage of indirect cost reimbursement from
the Federal Government an entire museum and its staff is disquali-
fied for undertaking any advocacy efforts either on its own behalf
or on behalf of the museum community.

I think that I would digress and just suggest to you a few of the
areas in which the museum community would have been ineffec-
tive in things that would have been directly affected by this regula-
tion.

To begin with, the very existence of both the National Endow-
ment for the Arts and National Endowment for the Humanities
would be called into question, if we were operating under this regu-
lation. We all took part in a national debate on these issues
through the Belmont Commission and in a series of other reports
that defined the area in which the Federal Government was going
to get involved in support of museums, the arts, and the human-
ities.

More recently, in conjunction with the Institute of Museum Serv-
ices, the museum community commented effectively on their pro-
gram to support efforts to improve professional standards for muse-
ums to provide that very agency with a method of arriving at
qualitative judgments on the effectiveness of museums.

Several years ago when the Department of Energy issued regula-
tions with regard to energy usage in institutions, we found our-
selves with zoos and botanic gardens whose very charges were
threatened by those regulations. Rare species of plants and animals
were not finally subject to energy cutbacks but these comments
that resulted in this exemption would have been impossible under
these regulations.

Enabling legislation for the UNESCO convention prohibiting the
illicit transport of works of art which was an issue in this Congress
for nearly a decade would never have been passed without the ef-
fective advocacy of the museum community which from a profes-
sional point of view helped outline and define the issues involved.

On the State and local level, many museums using the rigorous
matching requirements of the national endowments' challenge
grant programs have created effective partnerships with their
State and local governments which have allocated State and local
resources in partnership with Federal and private resources. With-
out the ability to make a real claim on the importance of the muse-
ums and other cultural institutions, without the ability to develop
positions that point out that this is a public good, these partner-
ships would indeed, in my judgment, often not come to fruition.

The effect of the regulation would be so wide ranging in fact that
evenhanded enforcement would probably be impossible. None of
the organizations that are reflected within the American Associ-
ation of Museums has the capacity to Undertake the kind of separa-
tions or audits that would result and we would all be faced with
making a kind of a Hobson's choice. We are already severely, and
we think properly, constrained in the area of political activity by
the IRS regulations. Our 501(c)(3) ruling, is far more precious to us

149

than let us say the $35,000 we receive from the Institute of
Museum Services. The notion that there is a rampant problem in
the private sector I think has been demonstrated to be misinforma-
tion today. The suggestion that these regulations are recommended
in order to defend first amendment rights and are based on, and I
quote from the circular, a "concern for protecting the free and
robust interchange of ideas" seems to me to be a kind of a rhetori-
cal chicanery. Thank you.

Mr. Brooks. I want to thank you very much for a fine statement,
Mr. Director. We appreciate your coming down, and making a con-
tribution to show the breadth of this effort to restrict and make
more difficult the exercise of freedom in this country.

[Mr. Botwinick's prepared statement follows:]

150

Testimony of Michael Botwinick
Director, Corcoran Gallery of Art

on behalf of
American Association of Museums

Mr. Chairman and members of the committee:

I would like to thank you for the opportunity to express my reservations
and those of the museum community concerning the revisions to Circular A-122
proposed by the Office of Management and Budget. My name is Michael Botwinick.
I am the director of the Corcoran Gallery of Art, a position I have held since
December, 1982. For eight years, I was the director of the Brooklyn Museum. I
am here today in my capacity as a museum director with extensive experience with
federal grants and as a representative of the American Association of Museums,
an organization with a membership of 7000 museums, museum professionals and
trustees.

The museum community is deeply concerned about the impact of the proposed
revisions on their capacity to function effectively in their communities and
states, and to assure their long-term capacity to preserve precious cultural
resources for the nation. Among the many major philosophical and legal problems
raised by the regulation, I would like to cite three problems of a practical
nature that we view as unjust and unworkable.

1. As the proposed regulation is now written, there is no balance struck
between the percentage of support an institution receives from the
federal government and the amount of advocacy it undertakes. If a
director or curator receives five percent of his salary as part of a
federal grant, the regulation would disqualify the other 95 percent of
his time for use in any type of advocacy.

151

2. The proposed regulation expands the definition of advocacy beyond
legislative activity to include commenting on regulations and
supporting legal actions with implications for a class of
organizations. It also expands the prohibition against advocacy to
activities undertaken at the state and local level. In this last
regard, the regulation is particularly unsound. Both the nature of
federal support to museums and the legal obligations of museums as
public trusts regulated by the states make this change untenable for
museums and most of the cultural community.

3. The inclusion of indirect or overhead costs that are part of a federal
grant or contract as "triggers" in the application of these rules is
incapacitating for most nonprofit organizations, particularly museums.
Federal support is a very small percentage of any museum's budget. In
the aggregate it is less than five percent of total museum operating
budgets. The portion of that support that goes to indirect or overhead
costs is probably less than one percent given the generally low
indirect cost rate most museums have negotiated with federal agencies.
For this small percentage of indirect cost reimbursement from the
federal government, an entire museum and its staff is disqualified from
undertaking any advocacy efforts either on its own behalf or on behalf
of the museum community.

To understand the implications of the proposed regulation on museums and
most of the cultural community, I would like to describe briefly the nature of
federal support to museums and examples of the types of advocacy museums
undertake.

The principal agencies that fund museums are the Institute of Museum
Services, the National Endowment for the Arts and the National Endowment for the
Humanities. Some support for basic research and collections is available to
science museums through the National Science Foundation.

152

The Institute provides small grants for general operating support to
approximately 500 museums each year. Until fiscal 1983, grants from IMS were
for $35,000 or less; the maximum this year goes to $50,000. At the endowments,
grants are available for special projects, such as exhibitions and conservation,
and for challenge grants—special grants that require a match of three new,
nonfederal dollars for each dollar of federal support provided.

Probably the most obvious and unfair adverse consequence to cultural
institutions of the proposed regulation is in the area of NEA and NEH challenge
grant support. Those on the committee with major cultural institutions in their
districts may be aware of challenge grants and their impact over the five years
they have been awarded. In some ways these grants are the model of what a
federal program should be. The goal is to insure sound financial management and
the long-term health of cultural organizations through broadening the base of
support. For each federal dollar awarded, a museum, must raise three new
dollars from individuals, corporations, foundations, and state and local
government. Challenge grant recipients on the average have matched federal
funds five to one — an impressive record. The challenge of these grants is not
just toMocate a certain amount of new money in a certain period of time, but to
alter fundamentally the pattern of support for cultural institutions. Both of
the museums I have directed have had challenge grants, and I can testify to
their impact on museums and their sources of support.

The need to generate state and local government funds to match these grants
has meant developing persuasive cases for committing precious public money for
the cultural well-being of a community or state, in other words effective
advocacy. This type of activity, which has been key to increasing support for
cultural activities at the state and local level, is seriously compromised by
the proposed regulation.

153

Another example of the impact of the proposed regulation, and one that
illustrates the institutional "gridlock" that is the logical outcome of the
regulation, is the effect of an Institute of Museum Services grant for general
operating costs. The Corcoran Gallery has an annual operating budget of $2.25
million; last year it received a grant for $35,000 from IMS. The grant became a
part of the general operating budget and was used for the ongoing maintenance of
our building and programs. It represented approximately 1.5 percent of our
budget. Nevertheless, under the proposed regulation our entire budget would be
"tainted" for lobbying purposes. We would have to forego our legitimate
interest in a variety of regulatory matters, including this one, and important
issues of federal cultural policy.

This regulation may have had its start in a correct impulse to avoid
federal subsidy of activities that were directed at self-promotion rather than
the promotion of the public good. The regulation that emerged does not address
the issue except to ban many necessary forms of public expression in the
nonprofit community.

The effect of the regulation would be so wide ranging, in fact, that
even-handed enforcement would be impossible. None of the agencies I have
mentioned has the capacity to undertake the audits that would result. Some
might find that a reason to ignore the implications of the regulation and to
conclude, that having too much effect, it would have none. That is precisely
the reason to oppose it. A regulation that can not be enforced across the board
will be enforced selectively. If this regulation is aproved, it opens the way
to harassment through audit and forfeiture of grant funds.

The American Association of Museums urges the committee to disapprove this
regulation as it is proposed.

154

Mr. Brooks. We will stand recessed until 1:30.
[Whereupon, at 12:40 p.m., the subcommittee recessed until 1:30
p.m., the same day.]

AFTERNOON SESSION

Mr. Brooks. The subcommittee will come to order.

Next we will hear from June Bucy, the chief executive officer of
the National Network of Runaway and Youth Services, Inc. She
served for 11 years as the executive director of the Youth Shelter
of Galveston, in the Ninth Congressional District of Texas. She also
served on the boards of youth services organizations across the
State of Texas and the Federal region, and was a member of the
Special Select Committee on Child Abuse of the Texas House of
Representatives.

She has a very outstanding assistant, her husband.

It is a pleasure to have you with us today. Please proceed.

STATEMENT OF JUNE BUCY, CHIEF EXECUTIVE OFFICER, THE
NATIONAL NETWORK OF RUNAWAY AND YOUTH SERVICES, INC.

Ms. Bucy. Thank you. I will not read this whole statement with
hope you will put it in the record.

Mr. Brooks. Without objection, it will be placed in the record.

Ms. Bucy. I am speaking on behalf of the National Network of
Runaway and Youth Services and our 600 member programs across
the country.

It seems that in all of this criticism of these regulations you have
overlooked something pretty important. It is kind of neat for me as
a nice little old lady in tennis shoes to feel that OMB feels that
your intelligence and your ability to judge is so weak that they
need to protect you from me.

Mr. Brooks. They judge us by themselves, you know.

Ms. Bucy. However, there are some of us who work with pro-
grams that deal with clients that are basically not our community's
favorite people. We work in programs that will probably never
have a whole lot of private money because there are some people in
our society whose problems just simply don't attract private
money. We need to look at the programs that are doing services for
that part of our society that you, as congressional people, have
deemed worthy of services, and yet no group of the private sector
with private money is willing and able to minister to as you have
chosen.

We in the runaway and other youth services see ourselves as
being advocates in the dictionary sense of the word, those "people
who plead another's cause."

A youngster alone on the street facing hunger or prostitution
does not generally call his Congressman. But you and I know that
it is the Congress that has provided more aid than has any other
source for these children.

If you had not heard advocates' voices who know about these
children to help you in understanding the problems perhaps you
would not have been a part of that provision.

People wiser than I have covered many of the constitutional
questions and the questions dealing with large organizations this

155

morning. I would like to add just a few things that it seems are
important to smaller organizations.

First, I would like to question whether your access to informa-
tion may not already have been more curtailed than you are
aware.

In the attempt to eliminate paperwork, and to give States more
freedom to approve their own plans for the use of Federal money,
there is much less data about social programs than there used to
be.

One might wonder if there is even an attempt to disguise or
ignore social problems by eliminating data collection about these
problems.

Apparently, what we don't choose to know, we can ignore.

There is limited data, and if professionals working with people
are prevented from educating you and the public, your information
will be severely limited, and the public debate will not be balanced.

There are no clear-cut answers to the interventions that Govern-
ment should make in the lives of families. The struggle for the in-
terface of the rights of individual privacy with legitimate public
concern is an unending one. The attempt to design and deliver
services that meet the genuine need of people in caring, account-
able, and cost-effective ways is very likely a struggle that will not
be over any time soon.

Speaking on behalf of our programs I would like to say that to
us, these proposed revisions seem impractical, impossible, and im-
moral.

Crisis intervention is often a work of rescuing people. One can
only rescue a certain number of people when, if you have any
brains at all, you begin to wonder why they keep on being in these
situations. Why is there this constant flow of people needing rescu-
ing?

The issues begin to fall into clear patterns when we hear the
same stories over and over again.

If we are unable to work with decisionmakers at the local levels
in such places as our schools, courts, and welfare agencies to pin-
point suggested changes in procedure, then we will have to contin-
ue to deal with problems one on one. Our problems are much too
numerous to be approached in that fashion.

I want to address another very practical matter. It has been my
experience that when a program creatively meets the needs of a
community, the people associated with that program become the
experts in that area for that community.

These people are not only expected to appear before decisionmak-
ing groups to provide information and technical assistance, they
are often appointed to be members of those same decisionmaking
groups.

This situation is not addressed by the proposed circular, but I
think in not being addressed it would create uncertainty, and
would, therefore, have a chilling effect on responsible participation
in the community life by citizens with professional expertise. Were
it clearly denied, then again those citizens would not have a way to
influence the decisions about which their education and their com-
mitment leads them to have concerns.

20-644 O— 83 11

156

For small agencies it would be simply impossible to move to an-
other place with another staff, another phone, another Xerox, to
talk about the issues which affect their clients. It would be a waste
of time and money, and we never have enough of either.

Finally, our contention is that not only are these proposed
changes impractical and impossible, but they are also immoral.

The law in Texas, and in most States, requires the reporting of
child abuse. If I know of a child who is being abused or neglected
and do not report that maltreatment, I am guilty of a crime.

This law and the child protective system it supports has saved
the lives of thousands of children and is recognized as a moral re-
sponse to an immoral situation.

As a professional youth service worker I know of thousands of
troubled children whose lives are endangered and whose future is
threatened.

I feel it is my moral duty to speak out. I feel I must work inten-
tionally to inform the general public with the specific intention of
creating a climate of opinion that will support changes to protect
children.

It is my moral obligation to join with others in advocacy organi-
zations where the information and the judgment of many people
can be combined to add to the public debate.

Mr. Chairman, I feel it is my moral obligation as well as my
privilege to communicate in a timely fashion, not just a written
fashion, with you as a Member of the highest decisionmaking body
of this country.

Your rights are restricted if you and your staff cannot call on me
and other people who have the information you need.

I trust your wisdom to lead you to take the necessary steps to
prevent the enforcement of the proposed revisions.

Thank you for your attention to this.

[Ms. Bucy's prepared statement follows:]

157

Statement to the

Committee on Government Operations

by June Bucy
Chief Executive Officer

The National Network of Runaway and Youth Services, Inc.

Mr Chairman and members of the Committee, thank you for this opportunity
to speak with you today. I am June Bucy and am speaking on behalf of the National
Network of Runaway and Youth Services, Inc. The National Network is an organization
that counts among its members over 600 independent youth and family service centers
in 46 states. The organizational goals are to bring national attention to the
needs of youth in crisis and to assist communities to develop cost effective
programs of high quality to meet those needs. Most of our members are small
programs which were created by civic or church groups responding to the needs of
youth and families in their community. Ours is a lively system of people who
expend great energy and enthusiasm working with people in crisis and educating
the public about the factors that produce crisis situations in the family
and the steps that may be taken to reduce the danger and harm to children.

We are advocates in the dictionary sense of the word--those who plead
another's cause. A youngster alone on the street facing hunger or prostitution
does not generally contact his Congressman. But you and I know it is the Congress
that has provided more aid than any other source for this child, and that it is
the advocates voice you have heard to assist you in understanding the problems of
these families.

Your access to information may well have been curtailed already more than
you may be aware. As I was preparing this statement I talked with people from
many agencies and organizations. One issue emerged of which practitioners are
acutely aware, but that apparently is not well known or recognized by those not
involved with the day by day details of service delivery. That issue is that in the
attempt to eliminate paper work and to give states more freedom to design and
approve their own plans for the use of federal money, there is much less data
collected than there used to be. To illustrate this point, let me tell you that
for years the federally funded runaway programs were required to complete a data
collection survey on each youth receiving service in the centers. That
requirement no longer exists—collection and reporting of this data is now
optional. One might wonder if there is even an attempt to disguise or ignore
social problems by eliminating data collection about these problems. Again I
illustrate from the runaway youth programs—the form is four pages long and has
264 questions, not much is unexplored one would think. Yet no where on the form
is there a question about sexual abuse a child might have experienced although
program providers have found such abuse is a major cause of children running from
their homes and a major threat to them on the street. Apparently what we do not
choose to know, we can ignore. My discussion with others underlines the fact
that diminished data collection and neglect of data in certain sensitive areas
is characteristic of many presently funded federal programs.

158

When you Congressional people are asked to make decisions based on the needs
of people, how are you going to know about those needs? If there is limite' data,,
and if professionals working with the people are prevented from educating "ou and
the public, your information will be severly limited and the policy debate will
not be balanced.

Decision makers at the federal, state, and local level need accurate
information and education. There are no clear cut answers to difficult and
confusing questions about how government should assist families. There are few,
if any, communities where the design of the social services system perfectly
matches the needs of the people—particularly of those people who act in
unpredictable ways as adolescents often do. The struggle for the interface of the
rights of individual privacy with legitimate public concerns is an unending one.
The attempt to design and deliver services that meet the genuine needs of people
in caring, accountable, and cost effective ways is likewise a lively struggle.
Private sector social, religious, and civic organizations have historically played
a role in this arena. Under the present administration they have been called upon
by the federal government in its private sector and volunteer initiatives to play
a larger role. It is encumbent upon Congress to spell out the ground rules for
this participation, and you have done so quite effectively in several pieces of
legislation restricting the use of federal funds for political or legislative
activities. We understand that legislation and support it enthusiastically.
Today, however, we are addressing proposed regulations that seem to lack
a statuatory base and would substantially alter the relationship between government
and the nonprofit community from the present relationship specified by Congress.

The proposed revisions of OMB's Circular A-122 greatly expand the
definitions of political advocacy and unallowable activities, and severly restrict
your access to information. They propose federal control of the use of private funds
by agencies which, often at the request of government, have accepted federal funds
to provide services for those whom Congress has deemed in need of them.

If these regulations are enforced^ service providers cannot enter into the
normal dialogues concerning community issues ? and they cannot freely present
information gleaned from their experiences to decision makers without the fear
that they may be jeopardizing their agency's budget. These service providers,
therefore, cannot do their best work. Programs will not be well designed to
meet the needs of people* The public will not understand the issues, and the
decision makers will not have the data they need to make appropriate decisions.
Speaking on behalf of our member programs and those youth and families we
serve, I want to say that to us the proposed revision if Circular A-122 appears
to be impractical, impossible, and immoral.

Social workers chose their profession because of their interest in people
and their desire to help them better their conditions. Most professionals that I
know set about their tasks with no thought of changing the system or of involving

themselves in political advocacy--at least as that term has normally been defined.
But having "rescued" one child after another from a similar crisis one soon begins

159

to realize that it would be much more efficient to prevent the crises. For
example, many of the children who come to runaway centers list, among their
problems, difficulties with their school experience. School failures and
expulsions frustrate parents as well as children and the angry accusations may-cause
a young person to feel unable to cope and unwanted by either the parents or the
school. If he runs from this frustration, the police and courts may soon be
involved. These issues begin to fall into clear patterns to a youth worker
who hears the story over and over again. If that worker or the director of that
program is unable to work with the decision makers in the local schools and courts
to pin point suggested changes in procedures, then the situation continues to be
repeated by student after student. It seems to me that our problems are too
numerous to be approached in that fashion. We need to eliminate the dangerous
curves and road blocks so that people will not continually crash against those
obstructions and become victims that must be rescued.

I want to address another very practical matter. It has been my experience
that when a program creatively meets the needs of a community the people associated
with that program become the "experts" in that area for that community. These
people are not only expected to appear before decision making groups to provide
information and technical assistance, they are often appointed to be members of
those decision making groups. This situation is not addressed by the proposed
revisions in the circular, but it seems to me to be a problem for many service
providers that would create uncertainty and would, therefore, have a chilling
effect on responsible participation in community life by citizens with professional
expertise.

Not only are the revisions impractical, but if enforced, they would make it
impossible for many organizations to function. Good management procedures require
an accountable Executive Director who is held responsible for the performance of
the total agency and its community relationships as well as for the performance
of a government funded program. T'o clear division can be made in delivering
social services and in planning, designing, evaluating and redesigning those
services. It is suggested that attempts to "influence" decisions about regulations,
zoning, or funding can be done by another staff person, in another place, with
another phone and another xerox. I doubt that this would be possible in large
well funded agencies. I know that it would be impossible for small agencies on the
front lines of service delivery. There is simply not enough staff and not enough
money for these functions to be that separate. And there are certainly not enough
sophisticated book keepers in our agencies to maintain clear records with such
complex and unclear guidelines.

Finally, our contention is that not only are the proposed changes
impractical and impossible , but they are also immoral . The law in most states
requires the reporting of child abuse. If I know of a child who is being abused
or neglected and do not report that maltreatment, I am guilty of a crime. This
law, and the child protective system it supports, has saved the lived of thousands
of children and is recognized as a moral response to an immoral situation.

As a profession youth service worker I know of thousands of troubled
children whose lives are endangere'd and whose future is threatened. I feel it
is my duty to speak out.

160

I must work diligently to inform the general public with the intention of
creating a climate of opinion that will support changes in our systems that at
present do not protect adolescents in crisis.

It is my duty to participate in community discussions with decision makers
and to contribute my understanding to that of others.

It is my moral obligation to join with others in advocacy organizations
that combine the information and judgment of many people to add to the public
debate. It is an attack on voluntary organizations which are valuable threads
in the fabric of our society to rule that the dues paid from private sources
to such an organization and that staff participation in that organization paid
for by private funds is unallowable if that staff person spends part of her time
on a federally funded project.

And, Mr. Chairman, I feel it is my moral obligation as well as my privilege
to communicate in a timely fashion with you as a member of the highest decision
making body in this free country. Your rights are restricted if you and your staff
cannot call on me and other people who have information you need. You know there
are problems in this nation, and you know they can be addressed when each of us
plays his pa t and works together. I trust your wisdom to lead y° u to ta ^ e tne
necessary st^ps to prevent the enforcement of the proposed revisions.

Thank you for your attention to this issue and for allowing me to address
it with you with morning.

161

Mr. Brooks. Thank you very much, Ms. Bucy.

Would your organization be able to continue in operation with its
present structure under the OMB proposal?

Ms. Bucy. You have asked other people that question. So I have
thought about it. I have two answers. One is that I just can't con-
ceive of the fact that you are going to let these regulations go into
effect, so I can't imagine how it would be if they were.

At another level

Mr. Brooks. You have lots of faith.

Ms. Bucy. Absolutely.

At another level, I don't think there is any regulation that
anyone could pass that would prevent me from doing everything
that I can to make it safer for children and for families to be
united in our world today. But, I don't know exactly how we would
do that.

Our National Network receives no Federal funds. So as a nation-
al body we can speak out and bring together such data and inter-
pret it as it seems wise to us.

Our member programs would probably have a great deal of diffi-
culty, but I think I could say for them, too, that the causes and the
children with which we work are so important that we would
simply find a way of making their needs known.

I think one of the ways that we might find, and this has not been
addressed today, we would use our boards in our local programs as
advocates.

You know some of my board members, and know they have
rather feisty ways of communicating. If that were the way the com-
munications have to come, I don't know of any rule that could say
a private citizen could not use his own time.

I certainly would not have to be required or induced as the pro-
posed version says, to work overtime in order to advocate for chil-
dren.

So I think no matter how tight the regulations are, truly commit-
ted people will find a way to serve those that they care about.

Mr. Brooks. I know that you are most resourceful and I want to
thank you very much for being here.

Mr. Clinger?

Mr. Clinger. I have no questions. I would like to echo your senti-
ments. Thank you very much for very helpful and refreshing testi-
mony.

Mr. Brooks. Our next witness is Mr. Forrest I. Rettgers, execu-
tive vice president of the National Association of Manufacturers.
He joined the NAM in 1974 and has served in his present position
since 1977. He has broad experience in the military, government,
and private industry. He has served as Deputy Assistant Secretary
of Defense for International Security Affairs and as administrative
assistant to Senator Harry F. Byrd, Jr. of Virginia.

Mr. Rettgers holds an M.A. in international relations from
George Washington University.

He obviously is a man of rare ability, charm, and poise. We are
delighted to have you. You may proceed.

162

STATEMENT OF FORREST I. RETTGERS, EXECUTIVE VICE PRESI-
DENT, NATIONAL ASSOCIATION OF MANUFACTURERS, ACCOM-
PANIED BY GARY D. LIPKIN, ASSISTANT GENERAL COUNSEL

Mr. Rettgers. Thank you, Mr. Chairman. It is always a pleasure
to be in front of you. I, for the business community, want to thank
you for all the work that you have done in behalf of business, espe-
cially the slow-pay bill in the last Congress.

I am the executive vice president of the National Association of
Manufacturers, NAM. With me today is Gary D. Lipkin, assistant
general counsel of the NAM.

We are most appreciative of the opportunity to appear here
today to express the concerns of our membership on the recently
proposed revision to OMB Circular A- 122.

I would like to set the record straight that in the media when
they referred to me as a F-blank-blank B-blank-blank for wanting
to take this thing to the Hill, my wife, when she read it, said she
was sure that that was a fighting bulldog. I just wanted to be sure
that everybody understands that that is what they were talking
about.

That comment was made when I threatened to take this to the
Hill and the reception that it would receive there.

NAM is a nonprofit, voluntary business association consisting of
over 12,500 member firms of all sizes from all parts of the country.

NAM members employ about 85 percent of all employees en-
gaged in manufacturing nationwide and they account for about 80
percent of our Nation's industrial output.

Further, approximately 78 percent of our members are entities
that are generally considered to be small business.

Let me make clear at the outset that NAM is not a Government
contractor; we do not solicit or accept Federal grants of any type.

OMB's proposed revision to Circular A-122 will nevertheless
have an indirect effect on NAM as an entity and a very substantial
and deleterious impact on a vast segment of our membership.

So very broad and unrestrained is the OMB proposal that it liter-
ally toys with fundamental and cherished first amendment rights.
So, too, it has generated a furor the likes of which I have only
rarely seen in many years of active participation in the govern-
mental process, and I have been up here on the Hill since 1955.

We are not at all unsympathetic to the objectives sought to be
achieved by OMB in its proposal, namely preventing Federal funds
from being used for political advocacy or direct lobbying.

As a general proposition, taxpayers' dollars should not be used to
directly fund overt partisan activities or lobbying, as those terms
are traditionally defined and understood.

Now, we contend that if there have been past abuses in this area,
OMB's proposed cure, when viewed in its totality, may prove to be
far worse than the suggested disease.

In our view OMB's proposal is rife with legal and practical diffi-
culties, through an overbroad definition of political advocacy and a
series of taint rules which can only be characterized as draconian
in nature. The very constitutionality of OMB's proposal is thus
called into question.

163

Consider for a moment the impact that this proposal would have
on a small business not unlike the many among our membership. I
have a direct example in mind.

The business consists of a company's founder-president, four
clerical employees and 35 production employees in the back shop.
A significant source of its orders and profits are derived from a
contract with the Defense Department. This small company is so
small that the president must from time to time pitch in with the
production employees when the need arises. This president hap-
pens to be on our board of directors at NAM.

Should the president of this company travel to Washington once
during the course of a year to attend a NAM policy committee
meeting or perhaps to meet with his Congressman, his entire
salary for the year must be excluded from his company's overhead
for the purposes of the Government contracts; not only that, but
the salary of his secretary also must be eliminated.

In his case he takes up one-third of the office space and the four
ladies take up the other two-thirds. It would mean his office space
could not be charged to the Government contract because it exceed-
ed the limits of the "5-percent rule" in the OMB circular.

This same effect would be accomplished if he contacted his local
governmental authorities in an attempt to obtain a new traffic
light outside of his plant.

Of course, since this person would, under this proposal, be de-
fined as a political advocate, the entire cost of his building and cer-
tain items of equipment must also be excluded if their percentage
occupancy is more than 5 percent of the usable space contained
therein.

The only way to avoid this disallowance under the 5-percent rule
is to move this political advocate and his attendant equipment out
of the building entirely.

We must confess that we fail to see the reasonableness or equity
of such a result on this small businessman.

Mr. Chairman, this example merely scratches the surface of the
difficulties inherent in this proposal. In operation, this proposal
will generate significant cost increases to the Government, to the
consuming public and, of course, to those directly affected.

Companies that have access to sophisticated accountants and
lawyers may be able with great difficulty and expense to create a
zone of quarantine that will separate a company's political advoca-
cy from its other operations. These costs will also be borne directly
by the taxpayer and the consumers.

Other companies less capable of dealing with this situation will
simply have to choose either to forego any level of participation in
the governmental process or any Government contract work.

To the extent that the former occurs we all lose. To the extent
that the latter occurs, then the Government again loses through re-
duced competition, lost jobs and other undesirable economic side ef-
fects.

As unintentional as these results may be, they are clearly fore-
seeable.

We do not have any specific remedial language to suggest to the
OMB at this time, but we do believe that there are ways to accom-

164

plish its objective by less onerous and less constitutionally suspect
means.

A government dedicated to a strong economy and the proposition
that an informed and politically active citizenry is the best guaran-
tor of freedom should go forward with regulations of this type only
after a careful weighing of the costs and the benefits of the change.

OMB has yet to clearly identify the need for its proposed changes
and no attempt has been made to quantify the putative benefits
that will be derived from them.

This must occur before we should tumble headlong into an un-
charted area that is fraught with so many practical difficulties.

Thank you, Mr. Chairman. Mr. Lipkin and I are available to
answer any questions the subcommittee may have.

[Mr. Rettgers' prepared statement follows:]

165

STATEMENT OP
FORREST I. RETTGER3, EXECUTIVE VICE PRESIDENT

OP THE
NATIONAL ASSOCIATION OP MANUFACTURERS

G-ood morning, Mr. Chairman. My name is Forrest I. Rettgers
and I am the Executive Vice President of the National Association
of Manufacturers (NAM). With me today is Gary D. Lipkin, Assistant
General Counsel of the NAM. We are most appreciative of the
opportunity to appear here today to express the concerns of our
membership on the recently proposed revision to 0MB Circular A-122.
While Circular A-122 applies only to non-profit organizations, the
Department of Defense, General Services Administration and the
National Aeronautics and Space Administration have simultaneously
proposed identical revisions to their procurement rules for their
"for profit" contractors. For the sake of convenience, however, we
refer herein solely to the 0MB proposal.

NAM is a non-profit, voluntary business association consisting
of over 12,500 member firms of all sizes from all parts of the
country. NAM members employ about 85 percent of all employees
engaged in manufacturing nationwide, and they account for about 80
percent of our nation's industrial output. Further, approximately
78 percent of our members are entities that are generally
considered to be "small business." An additional 158,000 employers
are represented by other associations that are affiliated with the
NAM through its Associations Department and the National Industrial
Council .

166

Mr. Chairman, let me make clear at the outset that she NAM is
not a government contractor and we do not solicit or accept federal
grants. However, OMB's proposed revisions to Circular A-122 will
have an indirect effect on NAM as an entity, and a very substantial
and deleterious impact on a vast segment of our membership. So
very broad and unrestrained is OMB's proposal that it literally
toys with fundamental and cherished constitutional rights. So too
it has generated a furor in Washington and around the country the
likes of which I have only rarely seen in my many years as an
active participant in our governmental process. Without question,
OMB's proposal deserves and requires the closest scrutiny.

The NAM and other trade associations have spent a great deal
of time and effort in the last few years encouraging our members to
develop active public affairs programs. We have done so largely
because of our strong belief that business entities have First
Amendment rights not unlike those afforded individuals; and that
the responsibilities that these rights entail, plus principles of
good citizenship and simple common sense, require that these rights
be fully exercised and vigorously defended when threatened. We
feel that OMB's proposed revisions to Circular A-122 do indeed
represent a threat to those constitutionally guaranteed freedoms.

We are not at all unsympathetic to the objective sought to be
achieved by the 0MB in its proposal: preventing federal funds from
being used for improper political advocacy. As a general

167

proposition, taxpayer dollars should not be used to directly fund
overt partisan activities or lobbying as those terms are
traditionally defined and understood. Nor do we contend that there
have not been past instances of abuse in this area. But 0MB' s
proposed "cure", when viewed in its totality, may well prove to be
far worse than the suggested "disease." Our primary concern is
that in attempting to reach the legitimate goal of avoiding the
diversion of government funds to political advocacy, the government
not infringe in an unnecessary, overly burdensome, or
unconstitutional manner upon the free exercise of treasured
constitutional rights.

The proposed revision simply goes too far in its attempt to
cure a "problem" that, if it does exist, certainly does not call
for so draconian a solution. For instance, the definition of the
term "political advocacy" goes far beyond any other definition of
similar terms like "lobbying" or "partisan activity." The expanded
definition urged on us by the 0MB includes activities that are
"political" if at all, in only the most peripheral sense. Such
things as amicus briefs, dues to a trade association, the costs
associated with a meeting that has any portion, no matter how
small, devoted to things political, and items of equipment (e.g., a
photocopier, a telephone) used in any part for political advocacy
would be unallowable costs under this proposal because they have

168

all been defined by the OMB as new-found types or
instrumentalities of political advocacy.

Mr. Chairman, permit me to give you a few real life
illustrations as to how some of these changes would directly affect
certain of our members. As a member-led organization, our policies
on issues are debated and established through a system of policy
committees that are composed of representatives of our member
companies. They are often convened in Washington for discussions
of public policy issues and perhaps then they may meet with elected
or other government representatives. The activities just described
would both fall under OMB's new definition of political advocacy.

In a particular situation that I have in mind, our member
company consists of the founder-president, four clerical workers,
and thirty-five other employees who make a product for the
Department of Defense under a contract that provides the vast bulk
of this company's work orders and profits for the year. By any
measure, this is a small business - so small, in fact, that the
founder-president often takes the place of an absent employee on
the shop floor. Yet, this individual's sole "political advocacy"
for the year might well be this trip to Washington. Is it fair or
reasonable to disallow his entire annual salary from hi3 company's
overhead under the contract because of this one trip? Is it
equitable to force him to remove himself, his photocopier, hi3
telephone, etc., to another building if he, as his company's

169

"political advocate" is found to occupy more than 5 percent of the
useable space in his current quarters?

The NAM, for one, emphatically does not believe that such a
result is fair or equitable. Nor, with 78 percent of our members
being small businesses, would this result represent an isolated
incident. Yet, such would be the direct impact of the proposed
revision to Circular A-122 . I would suggest that the upshot of
this could well be the cessation of this individual's and other
similarly situated individuals' involvement in the political system
and the NAM. The absence of the input of concerned citizens like
this is a development that this country can ill-afford and this
government should not foster.

Encouraging greater citizen involvement in the political
process is an oft-stated goal of our system. Indeed, prominent
figures often bemoan the lack of such involvement. While this is
not the time or the place to debate the merits of political action
committees (PACs), few can deny that their existence has brought
many new faces and players into an active role in the political
process. In enacting the Federal Election Campaign Act (PECA) and
approving the regulations promulgated thereunder, Congress
recognized that there is a very real difference between the funds
given to a PAC for contribution purposes and those used for its
operation and administration: while Congress forbade direct
corporate donations to a PACs treasury for the purpose of making

170

contributions to candidates, it specifically permitted corporations
to use their general treasury funds to underwrite a PAC's
administrative and operational costs. Clearly, the goal of keeping
corporate money out of the coffers of political campaigns was not
compromised, in the judgment of Congress, by allowing corporations
to use their money to pay for the operation and administration of
their PACs.

Apparently, the 0MB has come to a contrary conclusion as it
has chosen to include these costs in its li3t of items that
constitute "political advocacy" and cannot be paid for by funds
derived from government contracts. I emphasize that the money I am
referring to here does not find its way into a campaign treasury;
rather, it is used by the corporation to operate and administer a
means by which its employees - ordinary citizens - can make their
presence felt in the political system. Again, the 0MB proposal
could have the unintended side effect of limiting thi3 source of
citizen input into the political process.

I believe it should be abundantly clear by now that the
definition of "political advocacy" adopted by the 0MB here is far
too broad. The accepted definition, much akin to what is commonly
considered to be "lobbying," has stood the tests of time and our
judicial system. It has not been shown to be inadequate. We
therefore respectfully suggest that the current definition is
satisfactory and that this new and expanded definition is

171

unnecessary. Further, if a new definition is required for some
reason, it should be developed in a more rational and studied
manner than that which has been attempted here.

Intertwined with, and exacerbated by, the overbroad definition
of the term "political advocacy," are the sweep and potential
consequences of the list of "unallowable costs" that the proposal
contains. Permit me to return to my illustration of the small
business executive that I referred to earlier. As a company
official, it would be within the ordinary course of business for
him to engage in a certain amount of so-called "political"
activities at the local and state, as well as the federal level.
Often the very well being of a small business and its employees may
depend on some involvement in government at levels other than
national, and this proposal would cover such activities at all
levels of government. It seems patently unfair and alien to our
system to disallow all of this executive's salary costs if he
engages in nothing more than, for example, attempts to persuade the
local county board of supervisors to approve the installation of a
traffic light at the main gate of his plant. Yet, I would suggest
that such a ludicrous result is compelled by the existing language
of the 0MB proposal.

The wording of the proposal indicates other, equally
incongruous results. The costs associated with a corporate
telephone line used for hundreds, even thousands, of purely

20-644 0—83 12

172

business-related calls over the course of a year will be completely
disallowed if but one call is made on a political topic. A
photocopier used to make tens of thousands of copies of various
corporate documents will be disallowed if so much as a single copy
is made of a document urging political action of some sort. A
corporate computer, used to keep records and payroll accounts will
be disallowed if it is programmed to deduct a portion of an
employee's pay check for a contribution to the company's political
action committee, even though this use takes up but a fraction of
the time - a literal microsecond - that the computer is in
operation. The costs associated with a meeting of corporate
employees or shareholders would be disallowed- if so much as a
single statement urging those in attendance to "vote in the next
election" was made. This list, Mr. Chairman, goes on and on ad
infinitum . I would strongly suggest that this Committee urge the
0MB to give some careful and deliberate thought to the breadth of
their list of unallowable costs in view of these easily foreseen,
and perhaps unintended, consequences. It is our belief that,
operated in tandem, the scope and inherent vagueness of the terms
"political advocacy" and "unallowable costs" can easily become a
giant pincers for the stifling of the free and unfettered exercise
of First Amendment rights.

While the practical impact of this proposal on political
advocacy programs is substantial, a more basic concern is that of

173

ita effect on the fundamental First Amendment rights of free speech
and political association. Mr. Chairman, the NAM has reviewed the
Supreme Court cases cited by the 0MB in the Summary and Appendix
portions of its Federal Register notice announcing this revision at
48 Fed. Reg 3348-3351 (January 24, 1983), and, frankly, we do not
agree that these cases answer, or are responsive to, the difficult
and pressing constitutional problems raised by this proposal.

The 0MB proposal deals with the "problem of the use of federal
funds for political advocacy . . .". In contrast, the cases cited
by the 0MB deal with varying forms of government-sanctioned
coercion of individuals to subscribe, or contribute, to a
particular political ideology or cause on pain of losing some sort
of government conferred benefit:

Abood v. Detroit Board of Education , 431 U.S. 209 (1977), held
that the government may not, without seriously inhibiting the
free exercise of First Amendment rights, force public school
teachers to relinquish their right to freely choose the
political causes with which they wish to associate or
contribute to as the price of holding their jobs;

Vest Virginia State Board of Education v. Barnette , 319 U.S.
624 (1943), held that a public school student could not, on
pain of expulsion, be forced to salute the flag;

174

Wooley v. Maynard , 430 U.S. 705 (1977), held that a state
could not compel its citizens to display the state motto on
their automobile license plates on pain of imprisonment when
to do so would violate the citizens' religious beliefs; and,

Elrod v. Burns , 427 U.S. 347 (1976), a case involving
patronage dismissals, held that the government could not force
a public employee in a non-political job to give up his right
to certain political associations and beliefs as the price of
holding his job without seriously inhibiting the exercise of
First Amendment rights. The plurality opinion further notes
that the loss, or threat of loss, of "First Amendment freedoms
for even minimal periods of time, unquestionably constitutes
irreparable injury." Id., at 373, citing New York Times Co.
v. United States , 403 U.S. 713 (1971).

The 0MB would have done well to consider other cases which are
perhaps more relevant to the constitutionality of the proposal at
issue here. For instance, California Motor Transport Co. v.
Trucking Unlimited , 404 U.S. 508, 510-511 (1972), New York Times
Co. v. Sullivan , 376 U.S. 254, 270 (1964), and NAACP v. Button , 371
U.S. 415 (1963), all make clear that many of the types of political
advocacy that are at issue here are protected by the First
Amendment. It is a well-settled axiom of constitutional law that
if such rights are to be circumscribed, it must be done in a manner

175

that does so to the minimum extent possible. We suggest that this
principle has been all but ignored here.

Other rulings of the Supreme Court make clear that "even
though a person has no right to a valuable government benefit,"
such as a government contract or grant, "and, even though the
government may deny him the benefit for any number of reasons," the
government, " may not deny a benefit to a person on a basis that
infringes his constitutionally protected interests - especially his
interest in freedom of speech." Perry v. Sindermann , 408 U.S. 593
(1972) (emphasis supplied); accord , McDaniel v. Paty , 435 U.S. 618
(1978). This is true "however slight the inducement to the
individual to forsake these rights." Blrod , at 358 n. 11 (1976)
(plurality opinion) .

It is well-settled that government action which "chills," even
if it does not expressly prohibit, the exercise of an individual's
First Amendment rights is unconstitutional; the principle here is
that the government may not put so high a price on the exercise of
a constitutional right that few will choose, or have the ability,
to so do. See Miami Herald Publishing Co. v. Tornillo , 418 U.S.
241 (1974); D ombrowski v. Pfister , 380 U.S. 479 (1965). Supreme
Court decisions have consistently held that legislative
restrictions on political advocacy are "wholly at odds with the
guarantees of the First Amendment." Buckley v. Valeo, 424 U.S. 1,

176

50 (1976), citing Mills v. Alabama , 334 U.S. 214. (1966), and Miami

Herald Publishing Co. v. Tornillo , 413 U.S. 241 (1974). A law
which restricts speech or association on the basis of its content,
as in advocating a political point of view, must be closely and
carefully scrutinized to determine whether it impermissibly
"chills" an individual's First Amendment rights. In Buckley , for
example, the Supreme Court held that the primary effect of certain
campaign independent expenditure limitations was the restriction of
the quantity of political speech and that "[these] restrictions,
while neutral as to the items expressed, limit political expression
'at the core of our electoral process and of the First Amendment
freedoms.'" Buckley at 39, citing Williams v. Rhodes , 393 U.S. 23,
32 (1968).

Mr. Chairman, we have not had the opportunity to conduct an
extensive and/or exhaustive review of all of the constitutional
ramifications of the revision proposed by the 0MB. We do believe,
however, that the cases cited above indicate the potential
dimensions of the constitutional problems inherent in this
proposal. We suggest that these cases can lead to the conclusion
that, at the very least, more thoughtful consideration must be
given to the possibility that the free exercise of First Amendment
rights will be seriously compromised by the operation of the
proposed revision to Circular A-122 . Covered entities may well be
forced to choose between accepting federal contracts and freely

177

exercising their constitutional rights. Such a result must not be
taken lightly and demands close and careful scrutiny.

The 0MB has itself recognized the potential constitutional
dimensions of this proposal and has taken great pains to
characterize its effort as one that will "enhance" First Amendment
freedoms. I submit that by increasing the costs and difficulties
of engaging in First Amendment activities so greatly, and thereby
increasing the likelihood that some entities will not choose to
exercise them, the 0MB has done exactly the opposite. These
freedoms must be vigorously protected, "not only against
heavy-handed frontal attack but also from being stifled by more
subtle government interference." Bates v. Little Rock , 361 U.S.
516 (I960). As the Supreme Court has further stated:

In the domain of the indispensable liberties of speech, press,
or association, abridgment of such rights, even though
unintended, may inevitably follow from varied forms of
governmental action. NAACP v. Alabama ex rel. Patterson , 357
U.S. 449 (1958) (emphasis supplied).

Again turning to the potential effects of this forced election
in the business world, let me make the following observations.
Complying with this proposal as it now stands, and continuing a
meaningful and effective political advocacy program will be quite
costly and cumbersome. If a business entity wishes to continue

178

its so-called advocacy activities as defined by the 0MB, it will be
forced to take certain steps to assure that such advocacy does not
"infect" or "taint" the equipment and facilities used in the
fulfillment of its contractual obligations to the government so as
to prevent them from being included as costs under the government
contract. The best way to do this would probably be by purchasing
separate equipment that will be used solely for political advocacy
purposes. The additional costs that this would impose will most
assuredly be passed on in some fashion to the consumer-taxpayer
that the 0MB claims it is trying to protect here.

This proposal is not cost free to the government either. If
the government contractor chooses to continue its political
advocacy and its government contracting business, it may well
choose to purchase or devote certain equipment solely to the
fulfillment of its government business. Since the Circular, as
revised, will prevent these items from being charged to anything
other than government business, the price of the goods furnished
will rise, thereby increasing the cost of the contract to the
government. Again, the taxpayer will pay the ultimate price. At a
time when every effort is being made to cut or otherwise control
government expenditures, it seems somewhat self-defeating to
propose a change in procurement rules that will, at the very least,
serve as a means of increasing these very expenditures.

179

It may well be that some of the larger government contractors
covered by this proposal will be able to "finesse" their way around
it through complicated and unique accounting procedures, or by
creating a completely sterile cocoon within which all of their
political advocacy activities would be concentrated. But this sort
of effort at compliance also will carry a stiff price, and we
seriously question whether these added costs will be worth putative
benefits that have yet to be precisely identified or quantified in
any meaningful way. These added costs will be paid, initially, by
the contractor and the government, and eventually, by the taxpayer.

In addition, there may well be certain contractors, especially
the smaller ones, who may simply decide to forego government
contract work entirely. This too can lead to higher prices due to
reduced competition, and can have other less than desirable
economic side-effects including reduced employment opportunities.
Par from setting up a "wall of separation" between government money
and political advocacy, this revision will create a "zone of
quarantine" around government contracts into which entry will be
costly and limited to only the few who are willing to pay those
costs and risk a federal inquiry into their entire public affairs
function.

A hard choice is thus presented to a potential federal
contractor. The exercise of a fundamental constitutional right -
political advocacy or petitioning the government for a redress of

180

grievances - may have to be circumscribed or surrendered in order
to freely bid on government contracts. The alternative, foregoing
all government contract work, should not be encouraged by the
government in this or any other fashion. The end result here is
the well-known "chilling effect" on the exercise of treasured
freedoms. We would urge that the 0MB give some consideration to
such important consequences.

While we do not have any specific remedial language to suggest
at this time, the NAM believes that there are ways to reach the
0MB' s stated objective by less onerous and constitutionally suspect
means. However, since any regulation in this area potentially
impinges on fundamental rights, careful and deliberate scrutiny
will be required. In any event, nothing should be done unless and
until the views of constitutional scholars, affected organizations,
other interested parties, and the Justice Department are made
known. The broad and vague definition of political advocacy and
the resulting extensive list of unallowable costs are serious, and
in our view, potentially fatal flaws in this proposal. More
importantly, a government dedicated to a strong economy and the
proposition that an informed and politically active citizenry is
the best guarantor of freedom should go forward with regulations of
this type only after thorough analysis and careful thought.

When Congress, the regulatory agencies, and the courts have
acted in the analogous areas of lobbying regulation, ethics in

181

government statutes, and federal election laws, they have done so
in response to a definite, well publicized, and amply documented
need after extensive public debate and comment. In all of these
instances, clear and convincing evidence that the then-existing
rules were inadequate was presented. None of these steps have been
taken here. We respectfully suggest that something more than a
bald assertion, with no evidence or documentation presented, that
"the problem of the use' of federal funds for political advocacy by
grantees and contractors has been identified . . . " is needed
before so drastic a change with such serious ramifications is
proposed and adopted. This is especially the case when the
potential for the infringement of basic constitutional rights is so
much in evidence.

182

Mr. Brooks. Thank you very much for a fine statement; defini-
tive and useful.

I might ask you just one question. The OMB circular would pro-
hibit contractors and grantees from contributing money, including
dues, to any organization that had political advocacy as a substan-
tial organizational purpose or that spent $100,000 or more per year
on political advocacy.

Would this provision disqualify many of your members from be-
longing to your association?

Mr. Rettgers. It certainly would, Mr. Chairman. As you know,
NAM spends a great deal of its time on political advocacy. We rep-
resent our members for just that purpose here in Washington. I
guess we could say that it would inhibit us. As I told Mr. Horowitz,
if he was wrong at the end of the year he could say he was sorry;
at the end of that same year, if I were wrong, I would be out of
business.

Mr. Brooks. I appreciate your comments.

Mr. Horton?

Mr. Horton. Mr. Rettgers, your testimony is very important.

Mr. Rettgers. Always happy to see you, Mr. Horton. You have
been a friend of business for years and years along with the chair-
man.

Mr. Horton. Thank you very much.

I think your testimony will help us to correct this problem that
OMB has created. You have been here all morning so you have
heard the efforts of the chairman and me to make certain that
they understand downtown that we do not want this kind of regu-
lation.

Mr. Rettgers. If OMB had been there one-third of that time they
would know there is no way it will go away.

Mr. Horton. Thank you.

Mr. Brooks. Thank you very much.

Our next witness is George A. Daoust, Jr., executive director of
the National Council of Technical Service Industries. His organiza-
tion represents two dozen of the largest defense contractors, includ-
ing Boeing, Northrup, and Lockheed.

Prior to joining NCTSI he worked for Planning Research Corp.
and Stanford Research Institute. Dr. Daoust has also served as
Deputy Secretary of Defense for Manpower Research and Utiliza-
tion.

Dr. Daoust is a graduate of the U.S. Military Academy and re-
ceived his Ph. D. in international relations from Georgetown Uni-
versity. He is married to a lovely lady named Lucy.

Doctor, we are delighted to have you. Proceed with your re-
marks.

STATEMENT OF GEORGE A. DAOUST, JR., EXECUTIVE DIRECTOR,
NATIONAL COUNCIL OF TECHNICAL SERVICE INDUSTRIES

Mr. Daoust. It is a great pleasure to be here. Thank you.
I request that my statement be included in the record in toto,
please.
Mr. Brooks. Without objection, it is so ordered.
The gentleman is recognized.

183

Mr. Daoust. I certainly appreciate the opportunity to speak on
this issue. As you mentioned, sir, we are 23 companies providing
technical services under contract to the Federal Government. That
is a common factor that pulls them together into the council.

I only thought I was concerned about this issue before I read the
testimony that Mr. Wright inserted into the record this morning. If
after all this reaction they still hang on to the framework of this
revision we are indeed in serious trouble.

This broad net of the revised Circular A- 122 covers a lot of tech-
nical issues. For instance, fixed price versus cost plus fee contracts;
theoretically this would only apply on a cost plus fee contract.

On a fixed price you should be able to go in, you contract to do so
much work for a certain amount of money. But in actual practice
the Defense auditors may well look at your fee structure or over-
head structure for awarding that fixed price contract.

So it is a lot broader than it would appear.

At the same time it is discriminatory in that it applies only to
those particular types of contracts.

Almost everything in this revision is pointed toward something
that isn't broke. The whole excuse seems to be that the Govern-
ment is not able to enforce laws and regulations on lobbying and
such activities.

To issue such a blanket regulation to try to correct something
that they can't fix already is very wrong.

The idea of contamination that is in here, that one action will
contaminate the overhead costs of the individual, or the facility or
the transportation for a year. Why a year? Why not an hour for an
hour or a week or a month or 2 years?

It is absolutely arbitrary and it is punitive. This is the major
problem, I believe.

Rather than disallowing the particular activities, and this is
mixed up later again in Mr. Wright's statement where he starts
getting confused over the fact that what we are talking about here
is not disallowing the funding, not having the Government pay for
something, but having the Government not pay for anything that
the individual does or the piece of equipment is used for.

This punitive aspect is even worse than most of the other terms.

It is very unbalanced. The discussion this morning talked about
it being balanced, applying to everybody. They don't apply to
unions.

I am not recommending that. I don't want it to apply to anyone.
But they are exempt.

There is a term used frequently by Members of both parties, "gi-
pogob," "get into politics or get out of business."

OMB is reversing that. They are saying, "If you are in politics
you are going to be out of business with the Federal Government."

The accounting system changes that would be required under
this version or what appears to be the new revised version coming
out are going to be very expensive, complex; they will probably be
unworkable and may well be unallowable by the Government audi-
tors, because when you start setting up a couple of different over-
head accounting systems, trying to separate these things, you run
into a lot of other regulations.

184

Trade associations don't fare well under the revised regulations.
It says in here quite clearly Mr. Wright intends that trade associ-
ations will still be proscribed in the same terms.

A wide range of companies belong to trade associations. It is one
way small companies and small segments of society can be repre-
sented with a fairly loud voice. To ban them this way, to preclude
them from contributing to associations because they have a grant
or contract from the Government is very discriminatory.

Our broad political and economic actions which form our society
would be closed to all companies and associations that are covered
by this circular. This broad political-economic system that we work
in requires the input from a lot of people that do not have a Wash-
ington representative and are going to keep you from having to
read letters from every one of your constituents who has a prob-
lem.

The complexity of the various laws, IRS regulations, Federal
Election Commission rules, acquisition regulations, are pretty bad.

The role of Government-sponsored councils, advisory groups, tes-
tifying like this, all these ancillary actions are fairly complex.

The political situation, many States allow direct contributions
from corporations to political funds. This is a complex area. To try
to establish one overall blanket and say this is how we are going to
cover all of this, we aren't going to worry about the details, we are
going to issue a rule that will cover everything and take care of it,
is overly simplistic and unworkable.

The enforcement of the lobbying laws, compliance of the perma-
nent regulations that we have now, needs another approach.

The fact that the Government can't enforce them is not reason to
layer another set of regulations on top of what we already have.

As several members of this subcommittee and witnesses recom-
mended, this revision should be withdrawn entirely and start over
with a new concept: What are the objectives? What is being
sought? What do they want to do? Start from that in a systematic
fashion and try to get there.

Mr. Wright says in his testimony there is no uniform comprehen-
sive policy on costs for political advocacy. I hope there never will
be.

If you can roll everything that falls within that mantle into one
clear brief statement, albeit doing it in 2 weeks, it is going to take
more genius than was demonstrated in the initial revision.

Thank you.

[Mr. Daoust's prepared statement follows:]

185

STATEMENT OF

GEORGE A. DAOUSI JR.

EXECUTIVE DIRECTOR

NATIONAL COUNCIL OF TECHNICAL SERVICE INDUSTRIES

MR, CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:

I APPRECIATE THE OPPORTUNITY TO APPEAR BEFORE YOU TODAY ON
THE PROPOSED REVISION TO OFFICE OF MANAGEMENT AND BUDGET (OMB)
CIRCULAR A-122.

AS IS STATED IN THIS REVISION, SIMILAR PROVISIONS HAVE BEEN
PROPOSED FOR CIVILIAN AND DEFENSE CONTRACTORS THROUGH LETTERS
FROM THE DEPARTMENT OF DEFENSE, THE NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION AND THE GENERAL SERVICES ADMINISTRATION. THESE
AGENCY ACTIONS, WHICH ARE IDENTICAL TO THOSE INCLUDED IN THE OMB
REVISION, ARE THE REGULATIONS WHICH ARE OF CONCERN TO INDUSTRY.

I AM THE EXECUTIVE DIRECTOR OF THE NATIONAL COUNCIL OF TECHNICAL
SERVICE INDUSTRIES (NCTSI), WHICH IS AN ASSOCIATION OF 23 COMPANIES
WHICH PROVIDE TECHNICAL SERVICES TO THE FEDERAL GOVERNMENT (MEMBER-
SHIP LIST ATTACHED). THESE TECHNICAL SERVICES ARE COMMERCIAL AND
INDUSTRIAL TYPE ACTIVITIES WHICH ARE PERFORMED UNDER CONTRACT TO
THE GOVERNMENT. ESSENTIALLY THESE CONTRACTS ARE OF TWO TYPES:
EITHER AT A FIXED PRICE OR ON A COST PLUS FEE ARRANGEMENT.

THE PROVISIONS OF REVISED OMB CIRCULAR A-122 APPLY ONLY TO
GOVERNMENT CONTRACTS OF THE COST PLUS FEE TYPE. THUS, A COMPANY
PERFORMING ESSENTIALLY IDENTICAL WORK FOR A PRIVATE SECTOR CLIENT,
A GOVERNMENT CLIENT ON A FIXED PRICE CONTRACT AND A GOVERNMENT
COST PLUS FEE CONTRACT WOULD HAVE TO ESTABLISH A SEPARATE ACCOUNTING
SYSTEM FOR THE THIRD TYPE OF CONTRACT IN ACCORDANCE WITH THIS
CIRCULAR. THIS IS THE FIRST PROBLEM WITH THIS CIRCULAR, IT IS
DISCRIMINATORY IN ITS APPLICATION.

186

I WOULD LIKE TO POINT OUT THAT WHILE I AM ENDEAVORING TO BE
AS PRECISE AS POSSIBLE, THIS IS SUCH A TECHNICALLY COMPLICATED
SUBJECT THAT ANY STATEMENT IS SUBJECT TO MODIFICATION AND/OR
EXCEPTIONS. FOR EXAMPLE, WHILE UNDER A FIXED PRICE CONTRACT THE
CONTRACTOR THEORETICALLY BIDS TO PROVIDE A CERTAIN PRODUCT OR
SERVICE FOR A CERTAIN AMOUNT OF MONEY, IN PRACTICE THE GOVERNMENT
CONTRACTING PEOPLE MAY EXAMINE HIS OVERHEAD RATE AND OTHER
COMPONENTS OF HIS PRICE PRIOR TO AWARDING THE CONTRACT. IN THIS
CASE NON-COMPLIANCE WITH OMB CIRCULAR A- 122 COULD INFLUENCE THE
AWARD OF A FIXED PRICE CONTRACT.

THERE ARE EXTENSIVE LAWS AND REGULATIONS WHICH CONTROL
POLITICAL ADVOCACY, LOBBYING, LEGAL COSTS, LEGISLATIVE LIAISON
AND THE OPERATION OF POLITICAL ACTION COMMITTEES, (PAC'S) TO
MENTION ONLY A FEW OF THE ACTIVITIES THIS PROPOSED CIRCULAR
ADDRESSES. FROM THE VIEWPOINT OF INDUSTRY THIS CIRCULAR ISOLATES
COSTS PLUS FEE CONTRACTS AND REQUIRES ENTIRELY DIFFERENT ACCOUNTING
PRACTICES FOR THE TYPES OF ACTIVITIES I JUST MENTIONED, WHICH ARE
LUMPED TOGETHER AS "POLITICAL ADVOCACY". OVERHEAD COSTS, WHICH
MUST BE IDENTIFIED IN A COST PLUS FEE CONTRACT, ARE THE RATIONALE
USED UNDER THIS CIRCULAR TO PRECLUDE THE OTHERWISE IMPARTIAL
APPLICATION OF LAWS AND REGULATIONS RELATING TO POLITICAL ADVOCACY
TO A GOVERNMENT CONTRACTOR.

THIS IS THE NEXT PROBLEM WITH THE PROPOSED CIRCULAR, IT IS
ATTEMPTING TO PREVENT ACTIVITIES WHICH IN MOST CASES ARE ALREADY
UNALLOWABLE OR EVEN ILLEGAL UNDER EXISTING LAWS AND REGULATIONS.
THE FAILURE OF THE GOVERNMENT TO ADEQUATELY ENFORCE CURRENT LAWS
AND REGULATIONS IS A POOR REASON FOR A SWEEPING DISCRIMINATORY
PROHIBITION ON POLITICAL ACTIVITY AS IS PROPOSED IN THIS CIRCULAR.

187

LOBBYING COSTS ARE NOT NOW ALLOWABLE ON GOVERNMENT CONTRACTS,
INCLUDING FEES TO INDIVIDUALS OR FIRMS ENGAGED IN LOBBYING.

CORPORATE CONTRIBUTIONS TO PAC'S ARE NOT ALLOWED BY THE
FEDERAL ELECTION COMMISSION, ALTHOUGH ADMINISTRATIVE COSTS OF
SUCH COMMITTEES CAN BE FUNDED BY THE COMPANY. THIS OMB REVISED
CIRCULAR DENIES COMPANIES AND INDIVIDUALS WORKING ON GOVERNMENT
COST PLUS FEE CONTRACTS THE POLITICAL FREEDOM AUTHORIZED BY
THE FEDERAL ELECTION COMMISSION. THIS IS ANOTHER PROBLEM WITH
THIS PROPOSED CIRCULAR, IT APPEARS TO BE CHANGING LEGAL RIGHTS
WITHOUT BENEFIT OF LEGISLATION.

THE CONCEPT OF CONTAMINATION BY POLITICAL ADVOCACY IS NOT
SPELLED OUT AS CLEARLY IN THE NOTICE PRINTED IN THE FEDERAL REGISTER
ON CIRCULAR A-122 AS IT HAS BEEN EXPLAINED IN THE MANY MEETINGS
WITH OMB PERSONNEL. HOWEVER, IT APPEARS CLEAR THAT OMB INTENDS
THAT ONE ACT OF POLITICAL ADVOCACY WOULD PRECLUDE AN INDIVIDUAL
FROM BEING CHARGED TO OVERHEAD ON A GOVERNMENT CONTRACT FOR A YEAR.
THE OTHER CONTAMINATION CONCEPTS EXPAND THE DISALLOWAL OF CHARGES
FOR EQUIPMENT, TRANSPORTATION, SPACE ETC. THROUGH ANOTHER CRITERIA
UNDER WHICH, WHEN 5% OF A FACILITY HAS BEEN CONTAMINATED THE ENTIRE
FACILITY IS DISALLOWED.

I WOULD LIKE TO MAKE IT CLEAR THAT THIS DISALLOWANCE OF COSTS
IS PUNITIVE, IN THAT ALL COSTS FOR THE ARBITRARY PERIOD OF ONE YEAR
CANNOT BE CHARGED AS THE RESULT OF ONE ACTION WHICH CAN BE AS
HARMLESS AS RECOMMENDING A BALANCED BUDGET TO YOUR CONGRESSMAN.
LOBBYING IS NOT NOW AN ALLOWABLE OVERHEAD CHARGE. IF A PERSON
WORKING FOR A GOVERNMENT CONTRACTOR IS ENGAGED IN LOBBYING UNDER CURRENT
REGULATIONS, NO PORTION OF THE TIME SO SPENT, TRANSPORTATION,

20-644 0—83 13

188

COMMUNICATIONS OR OTHER EXPENSES INVOLVED CAN BE CHARGED TO OVER-
HEAD.

HOWEVER, UNDER THE PROPOSED CIRCULAR ALL OVERHEAD CHARGES
FOR EVERY INDIVIDUAL WOULD BE DISALLOWED FOR ONE YEAR! HOW OR WHY
AN ARBITRARY ONE YEAR PENALTY WAS SELECTED, RATHER THAN A WEEK,
MONTH, TWO YEARS OR ANY OTHER TIME HAS NOT BEEN EXPLAINED. THE
CLEAR INTENT TO PENALIZE ANY POLITICAL ADVOCACY, RATHER THAN SIMPLY
NOT HAVE IT CHARGED TO A GOVERNMENT CONTRACT, IS UNDERSTANDABLY
THE MAJOR FAULT WITH THIS PROPOSAL REVISION. THE INTENT SEEMS TO
BE TO DRIVE INDUSTRY COMPLETELY OUT OF POLITICS. BY THIS, I MEAN
INDUSTRY AS AN ENTITY.

THIS WOULD UNBALANCE THE POLITICAL EQUATION. IT SHOULD BE
NOTED THAT THIS PROPOSED CIRCULAR EXEMPTS LABOR UNIONS SO THAT
THEIR POLITICAL ACTIVITIES WOULD BE UNCHANGED. FULL PARTICIPATION
IN A POLITICAL ACTION COMMITTEE WOULD DISALLOW ALL OVERHEAD COSTS
FOR A COMPANY WITH COST PLUS FEE CONTRACTS. WHILE THE PUBLISHED
NOTICE STATES THAT FIRMS CAN ENGAGE IN POLITICAL ADVOCACY AND
STILL RECEIVE GOVERNMENT CONTRACTS, IT ESSENTIALLY REQUIRES THAT
THEY HAVE EMPLOYEES AND FACILITIES FOR ANY POLITICAL ADVOCACY
WHICH ARE SEPARATE FROM THOSE WORKING ON THE CONTRACT. SO, IF
YOU WORK ON A GOVERNMENT CONTRACT, YOU CANNOT PARTICIPATE IN YOUR
COMPANY PAC AND HAVE YOUR OVERHEAD CHARGES ALLOWED.

SEVERAL SENATORS AND REPRESENTATIVES HAVE USED THE PHRASE
GIPOGOOB WHEN ADDRESSING INDUSTRIAL GROUPS. THIS STANDS FOR
"GET INTO POLITICS OR GET OUT OF BUSINESS". IT SEEMS THAT OMB NOW
INTENDS TO REVERSE THIS CONCEPT, AND EXCLUDE BUSINESS FROM POLITICS.

189

ANOTHER MAJOR PROBLEM IS CREATED BY THE NEED FOR A NEW ACCOUNT-
ING SYSTEM TO IDENTIFY ALL OF THE PEOPLE, EQUIPMENT AND SPACE
INVOLVED IN POLITICAL ADVOCACY; AND THEN COMPUTE THE PERCENTAGES
OF CONTAMINATED SPACE SO AS TO ASCERTAIN WHENEVER 5% IS EXCEEDED.
NO LONGER WILL A TIME CARD SUFFICE; A SINGLE PHONE CALL AFTER
WORKING HOURS COULD ELIMINATE AN INDIVIDUAL, HIS OFFICE AND
PERHAPS THE ENTIRE BUILDING FROM OVERHEAD COSTS FOR A YEAR.
THIS IS AN EXTREME EXAMPLE, BUT CIRCULAR A-122 CALLS FOR EXTREME
ACTIONS.

IT IS ALWAYS EASY TO SAY THAT A PARTICULAR LAW, REGULATION
OR PROGRAM WILL HAVE DRASTIC RESULTS; THAT IT IN EFFECT WILL BE
THE STRAW THAT BREAKS THE CAMELS BACK. WHILE OMB CIRCULAR A-122
MAY OR MAY NOT SO QUALIFY ON GENERAL GROUNDS, IN ONE ASPECT IT
SEEMS TO BE POTENTIALLY QUITE DESTRUCTIVE. SINCE THIS CIRCULAR
ESSENTIALLY APPLIES ONLY TO COST PLUS FEE CONTRACTS TO THE GOVERN-
MENT, ANY COMPANY DOING A SMALL PERCENTAGE OF SUCH WORK OR A
COMPANY WHICH CONSIDERS ITS GOVERNMENT WORK TO BE OF MARGINAL
PROFITABILITY MAY DECIDE TO DROP SUCH WORK BECAUSE OF THE
ACCOUNTING PROBLEMS. CERTAINLY ESTABLISHING A SEPARATE NON-
POLITICAL ORGANIZATION WHICH CANNOT PARTICIPATE IN THE CORPORATE
OVERHEAD IS A MAJOR PROBLEM. A SEPARATE ACCOUNTING SYSTEM AND
OVERHEAD RATE FOR GOVERNMENT COST PLUS FEE CONTRACTS WILL BE
EXPENSIVE AND MAY BE DISALLOWED BY GOVERNMENT AUDITORS.

THERE IS ALSO THE PROBLEM OF MEMBERSHIP IN TRADE ASSOCIATIONS,
SUCH AS NCTSL WE WERE TOLD THAT TRADE ASSOCIATION DUES WOULT NOT
BE ALLOWABLE AND THAT IF TRADE ASSOCIATIONS WERE NOT INVOLVED IN
POLITICAL ADVOCACY NO ONE SHOULD JOIN THEM ANYWAY. ASIDE FROM

190

DIRECT LOBBYING, WHICH IS ALREADY STRICTLY CONTROLLED UNDER
FEDERAL ELECTION COMMISSION AND TAX-EXEMPT LEGISLATION, MOST
ASSOCIATIONS PROVIDE A FORUM AND CONCENSUS UNDER WHICH THE VIEWS
OF THEIR MEMBERS ARE MADE KNOWN TO THE EXECUTIVE AGENCIES. THERE
ARE A VAST NUMBER OF RULES AND REGULATIONS, SUCH AS THIS REVISION
OF CIRCULAR A-122 WHICH REQUEST INDUSTRIES COMMENTS. ASSOCIATIONS
HELP TRANSMIT THE REQUEST TO INTERESTED COMPANIES AND DEVELOP A
RELATIVE CONSENSUS IN RESPONSE. ASSOCIATIONS ALSO FREQUENTLY
PARTICIPATE IN MEMBERSHIP ON PANELS, ADVISORY COUNCILS AND COUNTLESS
OTHER POLITICAL/ECONOMIC ACTIVITIES WHICH HELP SHAPE OUR SOCIETY.
FOR THE SMALL COMPANY EVEN MORE THAN THE LARGE ONES, ASSOCIATIONS
PERMIT PARTICIPATION IN THE BROAD RANGE OF POLITICAL/ECONOMIC
ACTIVITIES WHICH DECIDE HOW OUR COUNTRY FUNCTIONS. TO DENY THIS
PARTICIPATION OR TO PENALIZE A COMPANY FOR PARTICIPATING IN SUCH
ACTIVITIES IS UNJUST. ASSOCIATION MEMBERSHIP FREQUENTLY IS THE
MOST ECONOMICAL WAY FOR A COMPANY TO EXPRESS THEIR VIEWS ON VITAL
NATIONAL ISSUES. IT CERTAINLY IS A NORMAL COST OF DOING BUSINESS,
REGARDLESS OF GOVERNMENT OR PRIVATE SECTOR CLIENTS.

MANY STATES AUTHORIZE CORPORATE POLITICAL CONTRIBUTIONS
WHICH ARE, NEEDLESS TO SAY, NOT CHARGEABLE TO GOVERNMENT OVERHEAD.
THE FEDERAL ELECTION COMMISSION PERMITS PAC SOLICITATION OF FUNDS
FROM SENIOR MANAGEMENT PERSONNEL UNDER ONE RULE AND SOLICITATION
OF ALL EMPLOYEES AND SHAREHOLDERS UNDER ANOTHER.

I MENTION THESE ASPECTS TO SHOW THAT OUR COMPLEX POLITICAL
ENVIRONMENT DOES NOT PERMIT A SIMPLE SOLUTION. THERE CAN BE NO
PANACEA WHICH WILL EQUITABLY SORT OUT UNALLOWABLE ACTIVITIES,
APPLY HARSH PENALITIES AND PERMIT EQUAL PARTICIPATION IN OUR
POLITICAL PROCESSES.

191

IT IS EASY TO SAY THAT ANYONE WORKING ON CONTRACT FOR THE
FEDERAL GOVERNMENT SHOULD NOT BE ALLOWED TO USE FEDERAL FUNDS
FOR POLITICAL ADVOCACY. HOWEVER, SALARY PAID TO INDIVIDUALS CAN
BE USED ANY WAY THEY WISH. AND, A CORPORATION HAS INDIVIDUAL STATUS
UNDER OUR LAW. FURTHERMORE, THIS CIRCULAR WOULD PREVENT A
CORPORATION FROM USING FUNDS AN INDIVIDUAL EARNED FROM THE PRIVATE
SECTOR IF THAT INDIVIDUAL ALSO WORKED ON A GOVERNMENT CONTRACT.

THIS DENIAL OF NORMAL POLITICAL /ECONOMIC PARTICIPATION WITH
SUCH STRINGENT PENALTIES IS WRONG. IF THIS CIRCULAR WAS PROPOSED
BECAUSE THE CURRENT UNCOMPLICATED LAWS AND REGULATIONS ARE
CONSIDERED TO BE UNWORKABLE BY THE GOVERNMENT, IMAGINE WHAT WILL
WILL RESULT FROM CIRCULAR A-122.

WHAT IS FAIR AND EQUITABLE? CURRENTLY LOBBYING COSTS ARE
NOT ALLOWABLE. BUT LOBBYING, PAC'S PARTICIPATION IN THE REGULATORY
PROCESS AND THE FULL SPECTRUM OF POLITICAL ACTION CAN BE CONDUCTED
BY A CORPORATION IF THESE COSTS ARE NOT CHARGED TO CONTRACT. WOULD
THE PROVISIONS OF OMB CIRCULAR A-122 APPLY ONLY TO THE PRIME
CONTRACTOR OR TO SUBCONTRACTORS AS WELL? WHAT WOULD BE THE
LIABILITY OF A MAJOR DEFENSE CONTRACTOR WITH TENS OF THOUSANDS OF
SUBCONTRACTORS?

THIS PROPOSED REVISION OF OMB CIRCULAR A-122 WOULD BE A
DISASTER FOR INDUSTRY AND FOR INDUSTRIAL TRADE ASSOCIATIONS. WHERE
ABUSES EXIST IN CURRENT LAWS AND REGULATIONS REMEDIAL ACTION SHOULD
BE SOUGHT. BUT WE SHOULD NOT ARBITRARILY EXCLUDE THE INDUSTRY
SUPPORTING THE CIVILIAN AND MILITARY AGENCIES OF OUR GOVERNMENT
FROM THE VAST ARRAY OF POLITICAL/ECONOMIC ACTIVITIES THAT SHAPE
OUR SOCIETY.

192

CORPORATIONS CURRENTLY MEMBERS
OF
THE NATIONAL COUNCIL OF
TECHNICAL SERVICE INDUSTRIES

BDM INTERNATIONAL/BDM MANAGEMENT SERVICES

BOEING COMPUTER SERVICES COMPANY

BOEING SERVICES INTERNATIONAL, INC.

BURNS & ROE SERVICES CORPORATION

CALCULON CORPORATION

CERBERONICS, INC.

CHEMFIX TECHNOLOGIES, INC.

COMPUTER SCIENCES CORPORATION

CONTROL DATA CORPORATION

DATACROWN, INC.

FEDERAL ELECTRIC CORPORATION
A Subsidiary of International Telephone and
Telegraph Corporation

HUGHES AIRCRAFT COMPANY

KENTRON INTERNATIONAL, INC.

LEAR SIEGLER, INC.

LOCKHEED CORPORATION

NORTHROP SERVICES, INC.

NORTHROP WORLDWIDE SERVICES, INC.

PLANNING RESEARCH CORPORATION

RAYTHEON SERVICE COMPANY
A Subsidiary of Raytheon Corporation

RCA SERVICE COMPANY
A Division of RCA

RURAL METRO FIRE, INC.

UNITED INFORMATION SERVICES, INC.

VINNELL CORPORATION

February, 1983

193

Mr. Brooks. Thank you very much.

Dr. Daoust, I have one question. Does your organization have
purely informational contact with Government agencies that might
be curtailed by the proposed OMB regulation?

Mr. Daoust. Yes; we do. We have a great many, aside from the
things that anyone can complain about, we have a great many
functions where people call me from the Government and say "We
need to know something" or "We have this opinion."

There is a great liaison function between particularly the execu-
tive branch of the Government and the companies in our associ-
ation.

Many people, not knowing anyone else, turn to me to speak for
industry on these support service type operations.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you very much, Mr. Chairman.

We appreciate your testimony. I think you were here this morn-
ing, so you heard our comments to Mr. Wright. I intend to follow
up on that and hope that they will give more time to this revision.

I would urge you and others testifying here today to watch it
very carefully and very closely. Our committee, of course, will be
doing that.

I am sure we will be back here again if they come out with any-
thing that we feel is counterproductive.

So I would urge you to be very careful.

I am sure that the chairman and I will cooperate, we will do ev-
erything to make certain that organizations such as yours and the
others who testified are not going to be discriminated against as
far as this type of regulation is concerned.

Mr. Daoust. Thank you, Mr. Horton. I certainly recognize that
comment that nothing is going to happen. You are right, except
they have been using that so much, "Nothing is going to happen;
you are not going to be executed until next month, not this
month," it doesn't give you a good feeling.

Mr. Horton. I understand that. I am certainly concerned with
what they are attempting to do.

As I attempted to urge them this morning, they must do their
homework before they really get into this very complicated thicket.

Mr. Daoust. Thank you.

Mr. Brooks. You might talk to some of your friends downtown,
explain the problem to them.

Mr. Daoust. Yes, sir.

Mr. Brooks. Our next witness is Evan J. Kemp, Jr., executive di-
rector of the Disability Rights Center in Washington, D.C. Before
joining DRC, Mr. Kemp was with the Division of Corporation Fi-
nance, Corporate Regulation, and Investment Management at the
Securities and Exchange Commission.

Prior to his work with the SEC he was in the Office of the Chief
Counsel of the Internal Revenue Service in Washington, D.C.

Mr. Kemp has been disabled since 1949.

He is accompanied today by Bonnie Milstein, who is a staff
lawyer with the Center on Law and Social Policy in Washington,
D.C.

We appreciate your being here, and you may proceed with your
statement.

194

STATEMENT OF EVAN J. KEMP, JR., EXECUTIVE DIRECTOR, DIS-
ABILITY RIGHTS CENTER, WASHINGTON, D.C., DISABILITY
RIGHTS EDUCATION AND DEFENSE FUND, INC., ACCOMPANIED
BY BONNIE MILSTEIN, ATTORNEY, CENTER ON LAW AND
SOCIAL POLICY

Mr. Kemp. Mr. Chairman, Congressman Horton, my name is
Evan Kemp. I am executive director of the Disability Rights
Center. I am appearing here today with Bonnie Milstein, attorney
with the Center on Law and Social Policy. I am here to provide tes-
timony on behalf of my organization and the Disability Rights Edu-
cation and Defense Fund, Inc.

The Disability Rights Center, a nonprofit, tax-exempt corpora-
tion, is a public interest organization working to strengthen the
rights of both physically and mentally disabled people. Since 1976
we have been committed to the enforcement of existing legislation
granting rights to handicapped people.

The Disability Righ f s Education and Defense Fund, Inc.,
[DREDF], is a nonprofit, tax-exempt national research, education,
community organizing, and advocacy organization dedicated to pro-
moting the civil rights of disabled people.

DREDF provides information and support to a constituency net-
work of over 5,000 disabled adults, parents of disabled children,
community-based independent living centers and self-advocacy
groups.

We are here to provide the committee testimony on the Office of
Management and Budget's proposed "Cost Principles for Non-profit
Organizations," published in the January 24, 1983, Federal Regis-
ter.

We are extremely concerned with the broad impact these regula-
tions will have on millions of disabled adults and parents of dis-
abled children who only in the last decade have achieved a signifi-
cant voice in the decisionmaking processes of our Government.

The large majority of disabled people are affiliated with nonprof-
it organizations that will be affected by the OMB proposed rules.
Federal regulations already exist which forbid such organizations
from lobbying or engaging in politics at taxpayers' expense. These
expanded regulations on political activity are unnecessary, inequi-
table, and conflict with Federal mandates intended to integrate dis-
abled adults and disabled children into society.

It is useful to look at two specific examples of this impact:

First is the area of regulatory reform and administrative policy
setting. Over the past year the Department of Justice has been re-
drafting coordination regulations implementing section 504 of the
Rehabilitation Act of 1973. The Department of Justice, Civil Rights
Division, has publicly stated that they intend to release the pro-
posed rule for 10 public hearings and a 120-day comment period
within the next month.

Section 504 is viewed by disabled people throughout the country
as our major civil rights act. It was enacted to promote integration
of disabled people into all phases of our society. Disabled people
have responded over the past year with 40,000 letters to the White
House and the Department of Justice outlining their concern with
any proposed changes in section 504. Our single most important op-

195

portunity to be heard is through providing oral testimony and writ-
ten comments at the 10 public hearings which will be held around
the country. Yet OMB would foreclose this opportunity to most dis-
abled people in the United States. The very existence of the OMB
notice in the Federal Register is having a chilling effect on disabled
people. They are concerned that if they take this opportunity to ex-
press their opinion on the regulations implementing section 504
they will lose necessary funding they receive to provide social serv-
ices and other assistance to their communities.

A second example of this impact is in the area of independent
living centers. In 1978 the Congress enacted title VII of the Reha-
bilitation Act of 1973. Title VII provides funds to establish commu-
nity based independent living service centers. The major goal of
the title is to provide funds for the establishment of programs that
will assist disabled people to live independently, outside of institu-
tions, and to promote self-sufficiency and leadership development.
The title provides 3 years of funds to establish programs. It is ex-
pected that the independent living programs will maximize third
party revenues in order to maintain their programs beyond the 3
years of Federal funds.

In order to comply with this the centers must be involved in all
levels of decisionmaking — on the local, State, and Federal levels.

The proposed OMB rules will prohibit this necessary develop-
ment of self-sufficiency for over 130 independent living programs
nationwide.

The OMB rules will severely undermine the Federal mandates
intended to promote equality of opportunity and integration into
society for millions of disabled people. Disabled people will be
denied the opportunity to receive information on governmental
processes and to communicate this information to their communi-
ties and the general public.

The process of policymaking has called for the consideration of
all points of view. Eliminating disabled people and their nonprofit
programs from this process by expanding the concept of political
activity and imposing the added burdens set out in the OMB rule is
illogical and counterproductive.

Mr. Chairman and members of the committee, we appreciate the
opportunity to be heard today.

Mr. Brooks. We appreciate your coming down. I have a couple of
questions for you, Mr. Kemp.

What impact do you think these proposed regulations will have
on the ability of disabled adults and parents of disabled children to
speak out on regulatory reform activities and administrative poli-
cies?

Mr. Kemp. It would have a severe impact. The disability rights
movement is very much of a grass roots movement. We have small
organizations all over the country. They are basically nonprofit.
Some do get Federal money. They are not big enough to be able to
split up and have two entities, one that would handle so-called po-
litical activities and the other Government grants or contracts. It
would have a severe impact on the disability rights movement
throughout the country.

Mr. Brooks. An adverse impact?

Mr. Kemp. Yes; very adverse.

196

Mr. Brooks. An impact can be either way.

Mr. Kemp. That is true.

Mr. Brooks. Although the proposed regulations affect all disad-
vantaged people, in what ways will they more adversely affect dis-
abled people?

Mr. Kemp. Disabled people are stereotyped by society. Disabled
people are considered child-like, sick, and dependent. We know we
are considered this way. Thus we tend to form groups to speak for
us.

This is one way we are different from other disadvantaged
people.

We are also a very young movement. There really wasn't a dis-
ability rights movement until about 10 years ago. Because of our
youth and inexperience, Circular A- 122 is going to hurt us more.

The mentally retarded and those who are very ill must have
groups to speak for them.

These groups performed a great public service in representing all
the people thrown off SSI and SSDI in the last couple of years. If
A-122 went through, the very ill and severely retarded would be
even more vulnerable to the whims of others than they are today.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you, Mr. Chairman.

Mr. Kemp, I don't have any questions. I just want to thank you
for your testimony. It is very effective.

Mr. Brooks. Thank you for your excellent testimony. We are
grateful to you and Ms. Milstein for coming down. Thank you very
much.

Our next witnesses, representing the American Civil Liberties
Union, will give their views on the constitutional implications of
the OMB proposal.

John Shattuck, the director of ACLU's Washington office, is a
graduate of the Yale Law School. Thomas J. Madden and David H.
Remes are with the Washington office of Kaye, Scholer, Fierman,
Hays & Handler.

We are delighted to have you gentlemen. We appreciate your
comments. We will enter your prepared remarks in the record so
you can lay out whatever you think is most essential.

STATEMENT OF JOHN SHATTUCK, DIRECTOR, WASHINGTON
OFFICE, AMERICAN CIVIL LIBERTIES UNION, ACCOMPANIED
BY THOMAS J. MADDEN, PARTNER, AND DAVID H. REMES, AS-
SOCIATE, KAYE, SCHOLER, FIERMAN, HAYS & HANDLER,
WASHINGTON, D.C.

Mr. Shattuck. Thank you very much, Mr. Chairman.

The American Civil Liberties Union is very gratified to be invit-
ed to testify here at this treatment of what we consider to be a fun-
damental constitutional issue. There are, obviously, many ramifica-
tions of the proposed OMB regulation.

What we are particularly concerned about is what we think is its
blatant, flat and sweeping violation of the first amendment to the
Constitution and not only of a particular group of citizens but of
millions of Americans who would be affected by this regulation.

197

Unlike many other invasions of first amendment rights, this one
cuts right across the board; it affects millions of citizens.

Mr. Chairman, our statement will be presented by Mr. Thomas
Madden, partner in the law firm of Kaye, Scholer, Fierman, Hays
& Handler.

As a former Federal official of the Department of Justice and an
expert on Government grants and contracts and a civil liberties ad-
vocate, Mr. Madden is uniquely qualified to present our views on
this matter.

Mr. Brooks. We will accept that for the record in full.

Mr. Madden. Thank you, Mr. Chairman. I would like to make a
very brief statement.

Mr. Brooks. The gentleman will proceed.

Mr. Madden. Mr. Chairman, it is the view of the

Mr. Horton. Would you yield a minute?

I have looked over your statement. It is a very good legal analy-
sis of the problems involved here. I want to compliment you on it.

I realize you are not going to read it all. We appreciate that be-
cause of the time problem. It can be a bible for them downtown to
guide them through some of this thicket I was talking about this
morning.

Mr. Madden. Thank you, Congressman Horton.

Mr. Chairman, it is the view of the ACLU that the proposed po-
litical advocacy rule would impose drastic and wholly unwarranted
restrictions on constitutionally-protected expression. It would su-
perimpose a full-fledged system of censorship on contract and grant
administration.

At the outset I would note that it is misleading to characterize
the activities at issue here as "political advocacy" as OMB has
done. The activities subject to the rule involve much more than
lobbying and electioneering.

The activities covered by the rule would include virtually any
statement or action that might directly or indirectly influence any
governmental decision.

Ordinary and necessary costs of performing a contract or grant
would simply be disallowed. For example, a Government contractor
who receives a contract to build a new Government office building
could not use contract funds to obtain Federal, State, or local per-
mits, licenses, variances, or other necessary approvals.

By the same token, a nonprofit organization performing under a
grant to provide services for disadvantaged children could not use
grant funds to negotiate modification of State and local policies to
maximize the availability of services for such children. An arts
group whose very raison d'etre is to perform dramatic works of
topical moment would be barred altogether from receiving Federal
funds to pay for the performance of such works.

The very purpose of this rule, we submit, is antithetical to first
amendment core values. Speech that is meant to persuade is enti-
tled to no less constitutional protection than speech that is meant
to inform.

Yet the proposed rule would allow Federal contract and grant
funds to be used only for neutral speech, and not for advocacy.

In our view the rule is therefore unconstitutional. The Supreme
Court has declared that "Government has no power to restrict ex-

198

pression because of its message, its ideas, its subject matter, or its
content."

As we explain in our prepared statement, none of OMB's prof-
fered justifications for this content-based regulation is constitution-
ally sufficient. The rule would not promote sound contract and
grant management. To the contrary, from the standpoint of con-
tract and grant administration, the rule would be unworkable, con-
trary to effective and efficient use of appropriated funds, and in
some respects entirely irrational.

In addition, there is no merit to OMB's claim that taxpayers
somehow have a right to see that their tax dollars are not used to
subsidize messages with which they disagree. There will always be
someone who objects to the way his or her tax dollars were spent,
and Government would grind to a halt if the dissenting taxpayer
could veto any expenditure of which he or she did not approve.

Even if it were legitimate for the Government to try to restrict
the use of Federal funds for political expression by contractors and
grantees, the way OMB has chosen to do so is unjustifiably burden-
some.

There is simply no reason to disallow the entire salary costs of
anyone who engages in any degree of political advocacy. Partial al-
location of such salary costs to the contract or grant should contin-
ue to be allowed, as it is under current law.

Nor is there any justification for requiring costly duplication of
staff and facilities — especially for an organization that wishes to or
must engage in political advocacy and performs under a Federal
contract and grant funds, but does not have access to substantial
nongovernmental funding.

Only recipients who could afford to split, amoeba-like, in two
would be able to engage in both types of activities, political and
nonpolitical alike. Few commercial contractors and even fewer non-
profit grantees could accomplish this feat. This enormous, unneces-
sary burden on protected expression clearly violates the first
amendment.

In addition, the very definition of political advocacy under the
proposed rule is unconstitutionally vague. The rule would leave it
entirely up to Government officials, acting as censors, to decide
whether particular words or deeds constituted political advocacy.

What constitutes an attempt to influence public opinion general-
ly, or governmental decisions in particular, is completely a matter
of subjective judgment.

This regime of unbridled censorial power contrasts sharply with
the existing system of lobbying and electioneering restrictions on
recipients of Federal funds, on Federal employees, and on tax-
exempt organizations.

Those restrictions address specific, narrow categories of behavior
and" entail no subjective inquiry into motive. The Supreme Court
has very narrowly construed the concepts of lobbying and election-
eering so as to avoid the very abuses of power that OMB's rule in-
vites.

Finally, the political advocacy rule contains a myriad of excep-
tions and qualifications that cast serious doubt on the rule's basic
sincerity.

199

When you realize that contractors and grantees may still issue
highly influential messages to Government if asked to do so by the
proper bodies you must come to the conclusion that it is not politi-
cal advocacy as such that this rule targets but, rather political ad-
vocacy without the Government's permission.

In conclusion, Mr. Chairman, we do not believe that the proposed
rule can be revised so as to cure its current defects without, in
effect, rescinding the rule altogether.

For the very aim of the rule is impermissible — to go beyond ex-
isting lobbying and electioneering limitations and to strike at any
expression that may influence the public in some way that may, in
turn, affect governmental decisions.

We believe that there is no constitutional way to achieve this
aim.

The ACLU believes that OMB should not merely revise its pro-
posed rule, as it has already indicated it is prepared to do, but
should abandon any effort to achieve the same result in some less
provocative way. The first amendment will not tolerate what OMB
proposes in any form.

Mr. Brooks. Thank you.

Mr. Horton?

Mr. Horton. Thank you very much.

Do you foresee any constitutional problems other than first
amendment problems with the present proposal?

Mr. Madden. I think there are constitutional problems in a
couple of other ways. One was referred to by one of the earlier wit-
nesses. That is the question of whether or not there is a violation of
the due process clause of the fifth amendment, whether or not that
due process clause arises out of violation of protected liability inter-
ests, also whether or not the executive branch has the authority
under a separation of powers doctrine to in effect prevent contrac-
tors and grantees from bringing to the attention of Congress and
Members of the legislature their concerns about Government pro-
grams, the concerns about the operation of their activities.

Congress has already spoken through various riders to appropri-
ations bills, 18 U.S.C. § 1913, as to what limitations on lobbying it
deems appropriate. In doing so it stretched the Constitution to its
limit. For the executive branch to go beyond that without any au-
thority I think creates very serious constitutional problems.

Mr. Horton. OMB cites several court cases as legal authority for
its proposal. Do these cases support those proposed rule changes?

Mr. Madden. Mr. Chairman, I believe they do not. I would be
glad to submit something for the record on that particular point.

Mr. Horton. I think that would be helpful for the committee.

Mr. Madden. OK. We looked at each of those cases and feel they
do not provide the necessary support.

[The information follows:]

200

In support of its proposed rule, 0MB cites seven cases, all of
which cut against , not in favor , of the rule.

Wooley v. Maynard held only that government may not coerce
individuals into serving as personal couriers for official messages.
This, in a way, was also the meaning of West Virginia Board of Education
v. Barnette . 0MB has simply offered no evidence that federal contract
or grant programs are being abused in this manner.

Elrod v. Burns stands for the proposition that employment of non-
policymaking state officials may not be conditioned on association with
a political party. 0MB has not suggested that access to federal contract
or grant funds is today being conditioned on political affiliation.
Moreover, the cure for government favoritism under Elrod is to make the
government benefit available on a neutral basis, and not to withdraw it,
as 0MB proposes.

Abood v. Detroit Board of Education held that individuals who are
required by law to support unions for collective bargaining purposes
cannot be required to subsidize union activities not germane to collective
bargaining. This is a far cry from saying, as 0MB says, that taxpayers
cannot be made to support "political advocacy" activities that are in
fact germane to statutory contract and grant purposes. In fact, Buckley
v. Valeo , a case not cited by 0MB, supports precisely the opposite
conclusion — namely, that a taxpayer has no First Amendment right to
insist that his or her tax dollars be spent only to spread those messages
with which the taxpayer agrees.

0MB does correctly cite NAACP v. Button and In re Primus for the
proposition that litigation may constitute a form of "political advocacy."
But 0MB fails to appreciate that this fact makes restrictions on
litigation activity more difficult , not easier , to justify.

Finally, 0MB misstates the thrust of Civil Service Commission v.
National Association of Letter Carriers . In Letter Carriers , the Court
declared it fundamental that Executive Branch employees should administer
the law in accord with the will of Congress, rather than in accord with
their own views or with the will of a political party. But the Court
made this general observation in affirming the validity of restrictions
barring federal employees from taking formal positions in political
parties, from undertaking to play substantial roles in partisan political
campaigns, and from running for office on partisan political tickets. It
is activities such as these , the Court recognized, that Congress deemed a
threat to the faithful administration of its will. Federal contractors
and grantees are already barred from using appropriated f unds ■ f or such
activities. The logic of 0MB' s reliance on Letter Carriers would thus
subject federal contractors and grantees to restrictions even more
stringent than those imposed on federal employees.

201

Mr. Horton. I have one other question I will ask and we will
have others that we will submit to you for written responses.

Does this rule impose an unconstitutional condition on the re-
ceipt of Federal funds?

Mr. Madden. I think it does impose

Mr. Horton. I realize you are not the Supreme Court, but

Mr. Madden. I think in reviewing the decisions of the Supreme
Court it is very clear that this does impose an unconstitutional re-
straint on receipt of Federal funds in a number of fashions. It is a
regulation that is based on content of speech and it regulates that
content of the speech in the way in which it imposes what I think
is a very severe penalty for exercise of free speech, by proposing to
disallow all of the costs involved in advocacy of an individual who
perhaps spends 5 percent or 10 percent of his or her time on advo-
cacy.

The rule is clearly intended to penalize that person for that par-
ticular speech. That raises significant constitutional problems.

There are vagueness issues that I referred to briefly. Basically
under this rule they do not provide the kind of clear guidance the
Supreme Court has said is necessary for restrictions of freedom of
speech.

In previous congressional enactments such as 18 U.S.C. § 1913
the Congress very narrowly defined the limitations on free speech
that would apply to recipients of Federal funds. They have limited
that to lobbying.

Lobbying is a well understood term and there is a substantial
basis for such restrictions. None of those are here.

That creates constitutional problems.

In our detailed statement we provide other reasons such as the
improper discriminatory effect of the rule on certain kinds of
speech.

Mr. Horton. Thank you very much.

Thank you very much, Mr. Shattuck, Mr. Madden, and Mr.
Remes. We appreciate your testimony.

Mr. Shattuck. Thank you.

[Messrs. Madden's and Remes' prepared statement and responses
to Mr. Brooks' questions follow:]

202

COMMENTS OF

AMERICAN CIVIL LIBERTIES UNION

ON "POLITICAL ADVOCACY" RULE

Prepared by
Thomas J. Madden and David H. Remes
Kaye, Scholer, Fierman, Hays & Handler
Washington, D.C.

Feb. 24, 1983

This submission represents the comments of the
American Civil Liberties Union ("ACLU") on the proposed
revision to the Office of Management and Budget ("OMB")
Circular A-122, "Cost Principles for Nonprofit
Organizations." 48 Feu. Reg. 3348 (Jan. 24, 1983). 1
The ACLU is a nationwide, non-partisan organization of
more than 250,000 members devoted to the protection of
individual rights and liberties. The ACLU does not
receive any of its funds from federal contracts or grants,

SUMMARY AND EFFECT OF THE PROPOSED RULE
The proposed rule, on its face, would disallow
the use of federal contract or grant funds to underwrite
activities defined as "political advocacy," Sec. (a); as
demonstrated below, the practical effect of the rule

1 The OMB notice announced that parallel versions of
the rule embodied in the proposed revision of Circular
A-122 would be proposed for civilian and defense
contractors by the Department of Defense, NASA, and the
General Services Administration. 48 Fed. Reg. 3348
(1983). The proposed OMB rule would consist of a new
paragraph "B 33 Political Advocacy ," to be inserted in
Circular A-122. 48 Fed. Reg. 3350 (1983). References
herein to the rule will be to sections of that new
paragraph B 33.

203

would be to disallow recipients of federal contract and
grant funds from engaging in such activities altogether.
The rule would require federal contractors and grantees to
maintain completely separate staff, office space, and
equipment for activities constituting "political
advocacy," Sec. (f), for salaries and any other costs
could not be apportioned between contract or grant work,
on the one hand, and "political advocacy," on the other.
See 48 Fed. Reg. 3349-50 (1983) (informational appendix).

Under the proposed rule, "political advocacy" is
defined broadly enough to encompass virtually any
statement or action by any federal contractor or grantee
that could conceivably have any -effect on anybody. Thus,
"political advocacy" would seemingly encompass activities
ranging from the exhibition of controversial artwork or
the production of a topical play by federally-funded arts
groups, to publication of a newsletter by an association
of state and local governments to its members discussing
developments in federal grant law; from a defense
contractor's efforts to obtain a variance from a local
zoning board to permit expansion of a facility for defense
contract work, to the submission of comments by public
health insurers on proposed regulations bearing on the
administration of their contract or grant programs.

20-644 O— 83 14

204

Any activity, in short, that could possibly be
construed as an "attempt" to "influence" the public on
political matters, or otherwise to "influence" any
"governmental decision," would fall within the rubric of
"political advocacy" under the proposed rule. See Sec.
(b)(1), (3), (4), (6). 2 The proposed rule would
completely disallow use of federal funds to underwrite
such activities, even if such activities were indisputably
related to the purpose of the federal contract or grant.
And the proposed rule would appear to place on the
recipient of the federal funds the burden of proving that
such funds were not used in any way to underwrite such
activities.

From the standpoint of contract and grant ad-
ministration, the proposed rule would be unworkable, con-
trary to effective and efficient use of government
funding, and in some respects wholly irrational. Ordinary
and necessary costs of performing a contract or grant
would simply be disallowed. As noted above, for example,
a government contractor who receives a contract to build a
new government office building could not use contract
funds to obtain federal, state, or local permits, licen-
ses, variances, or other necessary approvals. Approval

2 See infra Part II. Also included in the definition
of ""political advocacy" are participation in litigation as
an amicus curiae , Sec. (b)(5), and various forms of
support for a political action committee, Sec.
(b) (2).

205

for the provision of such fundamental services as
sewerage, traffic, or gas and electricity for contract
projects could not be sought using federal funds.

By the same token, a nonprofit organization
performing under a grant to assist battered wives, for
example, could not use grant funds to negotiate
modification of state and local policies to maximize the
availability of services for such wives. And, as noted
above, an arts group whose very raison d 'etre is to :
perform dramatic works of topical moment would be barred
altogether from receiving federal funds to pay for such
performance. 3

Inevitably, the propos-ed rule not only would
serve to limit the activities undertaken by contractors or
grantees themselves under federal contract or grant
programs, but would serve to limit the contract and grant
programs offered by federal agencies pursuant to statutory
mandate. Needless to say, if contract or grant costs for

3 Also affected would be nonprofit associations of
state and local government officials and entities — for
example, the National Governors Association, the National
League of Cities, the National Conference of State
Legislators, the National Association of Counties, and the
U.S. Conference of Mayors -- who currently receive federal
funds for communicating to their members information on
new government policies; for serving as clearinghouses for
information on effective projects developed by individual
members of such associations; and for developing model
laws, regulations, ordinances, and policies. Under the
proposed rule, the use of federal funds for virtually all
such purposes may well be deemed nonallowable .

206

certain activities are disallowed, contract and grant
funds simply will not be made available for such ac-
tivities in the first instance, even if fully within an
agency's discretion to make available under its mandate
from Congress.

THE PROPOSED RULE IS UNCONSTITUTIONAL ON ITS FACE

Vulnerable as the proposed rule would be from a
contract and grant administration standpoint, the rule
would be subject to attack on even more fundamental
grounds. Despite OMB's claim that its rule is motivated
by "concern for protecting the free and robust interchange
of ideas," 48 Fed. Reg. 3348 (1983)., the proposed "poli-
tical advocacy" rule is unconstitutional for three rea-
sons. First , the very purpose of the rule — to restrict
expression on the basis of its content — is one that the
First Amendment forbids government to pursue, absent a
showing of compelling justification and unavoidable neces-
sity. No such showing has been or can be made here.
Second , even if such a showing could be made, the defini-
tion of "political advocacy" under the proposed rule is
unconstitutionally vague, leaving to the subjective judg-
ment of government officials whether particular activities
constitute such advocacy. Third, by virtue of its excep-
tions and qualifications, the proposed rule unconstitu-
tionally discriminates among those to whom it will
directly or indirectly apply.

207

The proper test for whether a particular use of
federal funds should be allowed is whether that use of
funds is reasonably related to the purposes of the grant
or contract involved and is otherwise lawful. OMB, by
contrast, proposes to single out expression on the basis
of its "political" content, and to decree that such
expression may not be underwritten with federal funds —
regardless of whether such expression is reasonably
related to grant or contract purposes. The use of federal
funds to underwrite other, non -"political" expression
would continue to be allowed. Because the "political
advocacy" rule offends the First Amendment for the reasons
set forth herein, the rule is unconstitutional and,
accordingly, should not be promulgated.

I. The "Political Advocacy" Rule Would
Constitute a Forbidden Content-Based

Restriction on Expression Protected
By The First Amendment.

A. The Proposed Rule Is Presumptively
Unconstitutional.

It is settled that, even when an individual or

group has no independent right to a particular benefit,

the government may not grant or withhold that benefit on a

basis that infringes freedom of expression or any other

208

constitutionally protected right. Perry v. Sindermann , 408
U.S. 593, 597 (1972); Pickering v. Board of Education , 391
U.S. 563, 568, 574 (1968). By the same token, even where the
government might deny a benefit without giving any reason at
all, it cannot predicate the denial of a benefit on an
impermissible reason -- such as its desire to suppress
disfavored expression. See Perry v. Sindermann , supra ;
Thomas v. Review Board , 101 S. Ct. 1425, 1431 (1981).

Thus, at the outset, it should be recognized
that the fact that no one has a right to receive federal
contract or grant funds does not mean that the government is
free to impose any restrictions it may choose on the use of
such funds, or impose restrictions on the use of such funds
for improper motives. Nor can governmental restrictions on
protected expression by private parties be automatically
upheld on the basis of "the special interests of a government
in overseeing the use of its property." Consolidated Edison
Co. v. Public Service Commission , 447 U.S. 530, 540 (1980).
Any restrictions that are imposed must themselves be
constitutionally permissible. The restrictions embodied in
the "political advocacy" rule are not. 4

4 Needless to say, more than the rights of federal
contractors and grantees are at stake, for "the First
Amendment goes beyond protection of the press and the
self-expression of individuals to prohibit government from
limiting the stock of information from which members of
the public may draw." First National Bank v. Bellotti ,

(Footnote Continued)

209

The "political advocacy" rule avowedly discrim-
inates between expression that is meant to inform and ex-
pression that is meant to persuade, allowing the use of
federal funds to underwrite "neutral" speech but not
"political advocacy." But the Supreme Court long ago re-
cognized that "[t]he First Amendment is a charter for gov-
ernment, not for an institution of learning. 'Free trade
in ideas' means free trade in the opportunity to persuade
to action, not merely to describe facts." Thomas v. Col -
lins , 323 U.S. 516, 537 (1945). 5 Thus the Supreme
Court has declared that "the fact that advocacy may per-
suade ... is hardly a reason to suppress it: The Con-
stitution 'protects expression which is eloquent no less

(Footnote Continued)

435 U.S. 765, 783 (1978). See Virginia State Board of
Pharmacy v. Virginia Citizens Consumer Council, Inc. , 425
U.S. 748, 756-57 (1976); Linmark Associates, Inc. v.
Township of Willingboro , 431 U.S. 85 (1977). Any
content-based restriction on the use of federal funds by
contractors or grantees thus burdens the First Amendment
rights of the public as well as those of the recipients of
such funds. See Procunier v. Martinez , 416 U.S. 396,
408-09 (1974)r ~Kleindienst v. Mandel , 408 U.S. 753, 764-65
(1972) (dictum); Lamont v. Postmaster General , 381 U.S.
301, 305 (1965). It is irrelevant to First Amendment
analysis that the purpose of the speech involved may be
to promote an organization's purposes under a federal
contract or grant, and not some disinterested civic
purpose. See Virginia State Board of Pharmacy , 425 U.S.
at 7 61-65; Village of Schaumburg v . Citizens for a Better
Environment , 444 U.S. 620, 628-32 (1980).

5 Citing Abrams v. United States , 250 U.S. 616, 626
(1919) ( Holmes , J. , joined by Brandeis, J., dissenting),
and Gitlow v. New York , 268 U.S. 652, 672 (1925) (Holmes,
J., ]oined by Brandeis, J., dissenting).

210

than that which is unconvincing.'" First National Bank v.
Bellotti , 435 U.S. 765, 790 (1978), quoting Kingsley
International Pictures Corp. v. Regents , 360 U.S. 684, 689
(1959) .

Any rule that discriminates against persuasive
expression as such is therefore presumptively unconstitu-
tional, for "above all else, the First Amendment means
that government has no power to restrict expression
because of its message, its ideas, its subject matter, or
its content." Police Department v. Mosley, 408 U.S. 92,
95 (1972) . See , e.g . , Virginia State Board of Pharmacy v.
Virginia Citizens Consumer Council, Inc. , 425 U.S. 748
(1976) (invalidating state ban on advertising of prescrip-
tion drug prices); Consolidated Edison Co. v. Public
Service Commission , 447 U.S. 530 (1980) (invalidating
state utility commission order prohibiting inclusion in
monthly bills of inserts discussing "controversial" issues
of public policy).

B. The Proposed Rule's Justifications
Are Constitutionally Insufficient

Because the "political advocacy" rule is a
regulation "directed at speech itself, and the speech is
intimately related to the process of governing," First
National Bank v. Bellotti, 435 U.S. at 786 (footnote

211

omitted) ,*» the rule will not withstand constitutional
challenge unless it can satisfy two exacting criteria.
First , as justification for the rule, the government must
demonstrate "a subordinating interest which is compel-
ling," Bates v. City of Little Rock , 361 U.S. 516, 524
(1960), "and the burden is on the government to show the
existence of such an interest," Elrod v. Burns , 427 U.S.
347, 362 (1976). See Civil Service Commission v. National
Ass'n of Letter Carriers , 413 U.S. 548 (1973).

Second, even if such a compelling justification
can be adduced, the rule will not survive unless it has
been "closely drawn to avoid unnecessary abridgment of
[protected] freedoms." Buckley v. Valeo , 424 U.S. 1, 25
(1976) (per curiam). 7 But the "political advocacy"
rule is not supported by any compelling governmental
objective, and, even if it were, the rule is not tailored
to serve the government's proffered objectives in the

6 The proposed rule specifically includes within its
definition of "political advocacy" attempts to influence
ballot choices and "governmental decisions." Sec. (b)(1),
(3). See Sec. (e) (defining "governmental decisions").

7 See Thomas v. Review .Board , 101 S. Ct. at 1431-32;
Memorial Hospital v. Maricopa County , 415 U.S. 250, 256-59
(1974) ; Shapiro v. Thompson , 394 U.S. 618, 634 (1969);
Hunter v. Erickson , 393 U.S. 385, 386-91 (1969); United
States v. Jackson , 390 U.S. 570, 582-83 (1968); Sherbert
v. Verner , 374 U.S. 398, 404-07 (1963).

212

least restrictive manner possible.^

OMB advances three justifications for the
"political advocacy" rule. First , OMB suggests that the
proposed rule advances the government's goal of "sound
management of federal grants and contracts. "9 Second ,
OMB contends that the rule is warranted to assure that the
use of federal funds will not infringe constitutional
rights or distort the political process "by encouraging or
discouraging certain forms of political activity. " 1 ^

8 Notwithstanding OMB's suggestion to the contrary,
justifying the proposed rule does not merely involve a
demonstration that the rule represents a "balance" between
governmental interests and First Amendment rights. 48
Fed. Reg. 3348 (1983). As noted- above, the rule may be
justified only if it satisfies the exacting standards that
apply to any content-based restriction on protected
expression. Indeed, precisely because protected expres-
sion is at stake, neither OMB nor any other federal agency
should be deemed to have authority to "curtail or dilute"
such expression without the clearest statement of congres-
sional intent to authorize such regulation. See Kent v.
Dulles , 357 U.S. 116, 129-30 (1958).

9 48 Fed. Reg. 3348 (1983). Under its "sound manage-
ment" rationale, OMB asserts that the "diversion" to
"political advocacy" of federal funds is an "abuse of the
system and an uneconomical, inefficient and inappropriate
use of the public's resources." Id. OMB also asserts
that "the neutral, non-ideological administration of
federally funded programs" is impeded by "the appearance
of federal support for particular positions in the public
debate." Id. The proposed rule, OMB maintains, would
correct these problems.

10 48 Fed. Reg. 3348 (1983). Under this "burden on
speech and distortion of elections" rationale, OMB
maintains that the proposed rule would prevent the
government both from interfering with or controlling the
exercise of protected rights by those who receive federal
funds, and from indirectly influencing the outcome of
elections by subsidizing private political expression.
Id,

213

Third , OMB argues that the rule "will ensure, to the
extent consistent with the communications function of the
government, that taxpayers are not required, directly or
indirectly, 'to contribute to the support of an
ideological cause [they] may oppose.'"^ None of
these justifications can withstand close examination.

( 1 ) The "sound management" rationale. Th i s
rationale is entirely conclusory. Nothing in the OMB no-
tice indicates why the supposed "diversion" of federal
funds to so-called "political advocacy" is either "uneco-
nomical" or "inefficient." Moreover, OMB's characteriza-
tions of such "diversion" as "inappropriate" and "an abuse
of the system" simply restate the rationale behind the
proposed rule without justifying it. Indeed, to suggest
that the use of federal funds to underwrite "political
advocacy" is "uneconomical" or "inefficient" from a grant
or contract management standpoint is also merely to
restate the rule's rationale — if the premise of this
suggestion is that such use of federal funds is improper

11 48 Fed. Reg. 3348 (1983), quoting Abood v. Detroit
Board of Education , 431 U.S. 209, 235 (1977) . As a
corollary either of this "dissenting taxpayer" rationale
or of the second rationale, or of both, OMB also argues
that the rule is warranted to negate any inference that,
by making funds available to groups with particular
viewpoints, the government has itself endorsed those
viewpoints. Id.

214

and therefore a waste. 1 2

If the premise of OMB ' s suggestion is instead
that disallowance of the use of federal funds to under-
write "political advocacy" is warranted to reduce the
costs and burdens of administering federal grants and con-
tracts, then the short answer is that such a justifica-
tion, even if otherwise supportable, is constitutionally
insufficient. See Schneider v. New Jersey , 308 U.S. 147,
16 2 (19 39); Village of Schaumburg v . Citizens for a Better
Environment , 444 U.S. 620, 639 (1980). But that justifi-
cation is impossible to support in any event, for the
proposed rule, by commanding close government scrutiny of
contractor and grantee activity -for proscribed "political
advocacy" -- and by defining such advocacy in a manner
certain to generate dispute, see infra Part II — would
unavoidably increase rather than reduce administrative
costs and burdens. 13

12 The Acting Deputy Associate Director for Adminis-
tration evidently assumes that any funds used to under-
write activities defined as "political advocacy" have,
ipso facto , been "diverted from statutory purposes." 48
Fed. Reg. 3349 (1983). Such a sweeping assumption is
plainly unfounded. Surely it is within the statutory
purpose of a defense procurement contract, for example,
for a defense contractor to seek a "governmental decision"
in its favor when a variance is needed to permit expansion
of a contract work facility. Private "political advocacy"
thus may well be integral to the execution of a statutory
grant or contract program.

13 OMB argues that the current system creates "the
appearance of federal support for particular positions in
the public debate." OMB then seems to contend that
eliminating that appearance would remove an obstacle to

(Footnote Continued)

215

( 2) The "burden on speech and distortion of
elections" rationale. The difficulty with this rationale
is that the proposed rule is not the least restrictive
means of treating the supposed problem. If the government
fears that allowing federal funds to be used to underwrite
"political advocacy" will somehow burden the exercise of
First Amendment rights by recipients of such funds, then
the obvious solution is to assure that such funds are
truly made available with no strings attached — and not
to ban the use of such funds to underwrite the protected
activities. See Virginia State Board of Pharmacy v.
Virginia Citizens Consumer Council Inc. , 425 U.S. 748, 770
-71 (1976). 14 Similarly, if the- government fears

(Footnote Continued)

"the neutal, non-ideological administration of federally
funded programs." How a public perception of federal par-
tisanship could interfere with contract or grant adminis -
tration is left unexplained.

14 See also Joyner v. Whiting , 477 F.2d 456, 461-62
(4th Cir. 1973) (sustaining the right of state-subsidized
college newspaper to publish editorial on controversial
subject, holding that the First Amendment allows govern-
ment to "spend money to publish . . . positions on contro-
versial subjects"). OMB's reliance on Wooley v. Maynard,
430 U.S. 705 (1977) is entirely misplaced"! First, OMB has
offered no support for its suggestion that any aspect of
federal grant or contract administration is politically
coercive. Second, the fact is that in Wooley the Supreme
Court tacitly accepted Justice Rehnquist's observation in
dissent that the citizens of New Hampshire could indeed be
compelled to pay, through their taxes, for the cost of
erecting and maintaining billboards proclaiming "Live Free
or Die," even if they could not be compelled to display
that proclamation on their own license plates. 430 U.S.
at 721. See L. Tribe, American Constitutional Law , 590
n.8 (1978). This is not to suggest, of course, that the
government could compel recipients of federal funds to
espouse particular political viewpoints.

216

that its awards of contract and grant funds may somehow
bias the electoral process by subsidizing private
"political advocacy," then the solution is to guarantee
that such awards are made on a completely neutral basis,
without regard to the recipient's politics — and not to
disallow the use of federal funds to underwrite protected
activities . 1 5

More fundamentally, to advance as a justifica-
tion for the proposed rule the goal of shielding the elec-
toral process from governmental influence is ludicrously
under-inclusive. For as OMB itself is bound to
acknowledge, n [t]he activities of government in a
democracy necessarily involve a -degree of political
advocacy." 48 Fed. Reg. 3348 (1983). But OMB offers no
explanation for its conclusion that the use of federal
funds for "political advocacy" by contractors or grantees
is somehow more of a "distortion of the market place of
ideas" than the use of federal resources for such purposes
by the President and his appointees, or by Members of
Congress and their staffs. That such supposed
"distortion" is sought to be avoided only when the

15 OMB's citation to El rod v. Burns , 427 U.S. 347, 356
(1976), is wholly inapposite. Elrod stands for the
proposition that the employment of non-pol icymaking state
officials may not be conditioned on association with a
political party; OMB has not suggested that the current
system conditions access to contract or grant funds on
political affiliation. Indeed, mandating that such funds
be available to all, without regard to political
affiliation, is wholly consistent with Elrod.

217

speakers happen to be private parties, and not when the
speakers are government officials, casts into serious
question the genuineness of the government's professed
interest in avoiding such "distortion," and "the
plausibility of the [government's] purported concern."
First National Bank v. Bellotti , 435 U.S. at 793. See
also Smith v . Daily Mail Publishing Co. , 4 4 3 U . S . 97,
104-05 (1979); id. at 110 (Rehnquist, J., concurring in
j udgment) .16

In any event, the notion that the government's
support for "political advocacy" by private parties
impermissibly "distorts" the political system is itself
unfounded. So long as government remains neutral with
respect to religion, the Supreme Court has declared, the
use of "public money to facilitate and enlarge public
discussion . . . furthers, not abridges, . . . First
Amendment values." Buckley v. Valeo , 424 U.S. at 92-93.

( 3 ) The "dissenting taxpayer" rationale. Th i s
rationale, too, must fail both because the proposed rule
is a patently under-inclusive means of achieving the goal
of protecting such taxpayers, and because the rule is far

16 It bears emphasis that OMB has offered no evidence
that such "distortion" has occurred under the current
system, or that any appreciable portion of contract or
grant funds has been used for purposes unrelated to the
contracts or grants, or that the responsible agencies have
been generally unable to recover funds improperly expended
on such unrelated purposes. Cf. Buckley v. Valeo , 424
U.S. at 93 n.1 27.

218

from the least restrictive means available for achieving
that goal. Any notion that a taxpayer has some right to
insist that his tax dollars not be spent on causes he
opposes is obviously untenable: "[E]very appropriation
made by Congress uses public money in a manner to which
some taxpayers object." Buckley v. Valeo , 424 U.S. at
191-92 (footnote omitted). Dissatisfaction with the uses
to which one's tax dollars are put is an unavoidable fact
of life under our system of government.

Even if taxpayers had a right to direct on a
case-by-case basis the uses to which their tax dollars
were put/ the proposed rule does not genuinely promote
that goal. To bar private parties from using federal
funds to underwrite "political advocacy," without
prohibiting government officials from using federal funds
for such purposes, scarcely solves the dissenting
taxpayer's problem. Moreover, even assuming that a
taxpayer might legitimately complain that the current
system somehow channels his tax dollars solely into causes
he opposes, the solution, again, would be to assure that
his tax dollars are made available to contractors and
grantees on a completely neutral basis, so that those tax
dollars would at least be spent on causes of which the
taxpayer approves, as well as on those with which he

219

disagrees. Buckley v. Valeo , 424 U.S. at 92-93. 17

C . The Proposed Rule's Disallowance Pro-
visions Are Unjustifiably Burdensome

Each of the justifications offered by OMB in

support of the "political advocacy" rule therefore falls

woefully short of the standards imposed by the First

Amendment, and for this reason alone the proposed rule is

unconstitutional. In addition, the proposed rule is

unconstitutional because its Draconian disallowance

provisions are unjustifiably burdensome.

17 Nor does Abood v. Detroit Board of Education , 431
U.S. 209 (1977), support OMB ' s position. A federal
contractor or grantee executing statutory program
responsibilities can hardly be likened to a labor union
organized for collective bargaining purposes, and the
taxpayers whose tax dollars are made available to such
contractors or grantees through the federal government can
hardly be likened to union members. Moreover, although
the Supreme Court in Abood held that individuals who are
forced by law to help defray the expenses of a labor union
may object to the use of their contributions for political
purposes unrelated to collective bargaining activities,
the Court in Abood also ruled that such individuals could
not object to the use of their contributions for advocacy
activities germane to "the cause which justified bringing
the group together." 431 U.S. at 222-23, quoting
International Association of Machinists v. Street , 367
U.S. 740, 778 (1961) (Douglas, J., concurring") - ; Surely no
analogy to Abood can therefore invalidate compelled
contribution by taxpayers to "political advocacy" by a
federal contractor or grantee on matters germane to the
federal contract or grant.

20-644 0—83 15

220

Under the current system, recipients of federal
funds may separate out that portion of their activities
devoted to nonallowable purposes when computing their
costs under a contract, or when allocating their expenses
under a grant. The "political advocacy" rule would
preclude such an approach. An officer of a defense
contractor who spends 20% of his time on activities deemed
to constitute "political advocacy" under the proposed rule
could have none of his salary paid out of federal funds,
even if he devoted the other 80% of his time to allowable
activity. Sec. (f)(1)(a). A public health insurer that
devotes 15% of its energy to "political advocacy" could
use no federal funds to pay the -rent for the building at
which it engaged in such disallowed activity, even if the
remaining 85% of the activities in which the insurer
engaged on the premises were allowable. Sec. (f)(2)(a).

The upshot of these disallowance provisions is
that any individual or organization that seeks to receive
federal contract or grant funds must literally split,
amoeba-like, in two if such individual or organization
wishes to engage in "political advocacy" and perform under
a federal contract or grant contemporaneously. This,
of course, is impossible in the case of individual
grantees. A nonprofit organization would be required to

221

have two executive directors -- one to administer the
contract or grant, the other to serve organization purposes
involving "political advocacy." An association of state and
local governments would be required to rent, furnish, and
staff two suites of offices -- one to use for contract or
grant purposes, the other to use for association purposes
involving "political advocacy."

As a practical matter, this is an impossibility
for any organization which provides service to the public
— such as a public health organization, a domestic
counselling service, or any public service provider. This
is so because, by definition, a public service provider
must necesssarily advocate the viewpoint of its
constituency ( e.g. , those whose interests are at stake in
family planning counselling or the provision of housing for
the elderly). Furthermore, fundraising by any private
organization necessarily involves advocacy of that
organization's point of view in such a way as to influence
public opinion. See Buckley v. Valeo , 424 U.S. at 20-21
(recognizing that political solicitation and contribution are
themselves expressive acts); id. at 241, 244 (Burger, C.J.,
concurring in part and dissenting in part).

There is simply no justification for this over-
whelming burden on "political advocacy." To the extent
that such advocacy is actually related to grant or con-
tract purposes, such burdens are wholly irrational.

222

Nor are the proposed disallowance provisions likely to
simplify contract or grant administration for the government,
since those provisions do not eliminate any potential for
subterfuge, and in fact magnify policing difficulties by
requiring government officials to closely monitor both the
quality and quantity of each recipient's activities under the
vaguely-defined "political advocacy" rubric. Even if the
proposed disallowance provisions might indeed simplify
contract or grant administration, the fact that they might do
so could not justify the burdens imposed. See Schneider v.
New Jersey , supra .

But the true evil of OMB's proposed disallowance
provisions involves more than their irrationality. For
the proposed disallowance provisions would tend to
disqualify from receiving contract or grant funds those
organizations that could not afford to split in two in
order to engage in "political advocacy" while performing a
federal contract or grant. The expense of duplication
imposed by the proposed disallowance provisions might well
be prohibitive in many instances, and individuals or
organizations might thus be forced to forgo "political
advocacy" altogether in order to qualify for federal con-
tract or grant funds. In this respect, the proposed rule
would impermissibly condition the receipt of public bene-
fits upon the sacrifice of constitutional rights. See,

223

e.g. , Frost & Frost Trucking Co. v. Railroad Commission ,
271 U.S. 583, 593-94 (1926); Sherbert v. Verner, 374 U.S.
398, 404 (1963); Wieman v. Updegraff, 344 U.S. 183, 192
(19 5 2) ; Western & Southern Life Insurance Co. v . State
Board of Equalization , 101 S. Ct . 2070, 2077 (1981). The
government may not impose financial restrictions on First
Amendment rights without regard to the deterrent effect of
such restrictions on all but those groups blessed with a
"full purse." Murdock v. Pennsylvania , 319 U.S. 105, 112
(1943) .

Indeed, if the withholding of an otherwise
available tax benefit because of one's exercise of a
protected right is a forbidden penalty on the exercise of
such right, see Speiser v. Randall , 357 U.S. 513, 518
(19 58); First Unitarian Church v. County of Los Angeles , 357
U.S. 545 (1958), it is difficult to understand why the
withholding of otherwise available contract or grant funds
because of one's desire to engage in "political advocacy"
without costly duplication of facilities and staff would not
also constitute a forbidden penalty on the exercise of
protected rights. The duplication requirement would in
effect penalize those individuals and groups committed to
"political advocacy," while favoring those individuals and
groups not so committed. Cf . Yick Wo v. Hopkins , 118 U.S.
356, 369 (1886).

224

For these reasons, the "political advocacy" rule
would be unjustifiably burdensome even if the rule's
objectives were compelling, and even if no less
restrictive means were available to serve those objectives
than the flat disallowance of the use of federal funds to
underwrite the proscribed activities. But even if, in
addition, the "political advocacy" rule's disallowance
provisions themselves could be justified, the rule would
nevertheless offend the First Amendment for the further
reasons set forth below.

II. The Definition of "Political Advocacy" is
Impermissibly Vague .

The proposed rule defi-nes "political advocacy"

with varying degrees of clarity. On the one hand,

"political advocacy" is defined as supporting a political

action committee in various specified ways, Sec. (b)(2),

and as participating in or contributing to the expenses of

litigation as an amicus curiae, Sec. (bHS). 1 ^ other

18 That participation as an amicus curiae may be a
clearly defined activity does not mean, of course, that
any proscription of the use of federal funds to underwrite
such activity is automatically valid. Whatever other
reasons may be available to justify proscribing the use of
federal funds for amicus curiae participation, the use of
such funds for that purpose cannot be proscribed on the
ground that the activity involved constitutes "political
advocacy," for such a motive is impermissibly
content-based.

225

aspects of the definition of "political advocacy," on the
other hand, are quite vaguely defined. Thus, all attempts
to influence the outcome of any popular vote, Sec. (b)(1),
or to influence any governmental decision either through
attempts to affect the opinions of the general public or
any segment thereof, Sec. (b)(3), or though "communica-
tions" with any public official or government body, Sec.
(b)(4), are defined as "political advocacy." 19 As
noted above, this definition of "political advocacy" could
encompass virtually any statement or action by a recipient
of federal grant or contract funds that has any effect on
anybody .

But the rule's definit-ion of "political
advocacy" nowhere explains what constitutes an "attempt"
to "influence" a popular vote or a governmental decision
-- expression meant to persuade rather than simply to
inform. And no reliable distinction between "neutral"
expression and "political advocacy" is indeed possible.
Certainly the two kinds of expression cannot be
distinguished on the basis of their content: Dry
recitations of fact are often far more influential than
impassioned pleas. Nor may the two types of speech be

19 Also defined as "political advocacy" is any support
provided by a recipient of federal grant or contract funds
to any organization "that has political advocacy as a
substantial organizational purpose, or that spends
$100,000 or more per year on activities constituting
political advocacy." Sec. (b)(6).

226

distinguished on the basis of their effect : Surely it
would be irrational to define "advocacy" as expression
that does in fact persuade. Finally, it would be imper-
missible to distinguish "advocacy" from "neutral" expres-
sion on the basis of the speaker's perceived intent ; That
way lies censorship in its most pernicious form. As the
Supreme Court has declared in an analogous context:

[T]he supposedly clear-cut distinction
between discussion, laudation, general
advocacy, and solicitation puts the speaker
. . . wholly at the mercy of the varied
understanding of his hearers and
consequently of whatever inference may be
drawn as to his intent and meaning.

Such a distinction offers no security
for free discussion. In these conditions
it blankets with uncer-tainty whatever may
be said. It compels the speaker to hedge
and trim. He must take care in every word
to create no impression that he means [what the
government has precluded him from saying] .

Thomas v. Collins , 323 U.S. at 535. Cf . In re Primus ,

436 U.S. 412, 433 (1978). 20

Because of the vagueness with which "political

advocacy" is defined under the proposed rule, recipients

of federal grant and contract funds would be discouraged

20 In a vain effort to distinguish between expression
meant to inform and expression meant to persuade, the
proposed rule exempts from its definition of "political
advocacy" "[m]aking available the results of nonpartisan
analysis, study, or research, the distribution of which is
not primarily designed to influence the outcome of any
[popular vote] or any governmental decision." Sec. (c)(1).
How it can be determined whether any given document is truly
"nonpartisan," and is "not primarily designed" to achieve a
forbidden effect, is not explained.

227

from using federal funds to engage in any activity that
could possibly be construed by hostile officials as "at-
tempts" to "influence" any popular vote or governmental
decision. Contractors and grantees would be required "to
'steer far wider of the unlawful zone,' than if the bound-
aries of the forbidden areas were clearly marked[,] . . .
restricting their conduct to that which is unquestionably
safe." Baggett v. Bullitt , 377 U.S. 360, 372 (1964), quoting
Speiser v. Randall , 357 U.S. 513, 526 (1958).

As a result, performance of federal contracts and
grants would be inescapably impaired. Worse still, recipi-
ents would be encouraged not to engage in potential "politi-
cal advocacy" even with non -government funds, lest such
activity invite suspicion of an improper purpose in their use
of federal funds. 21 For under the "political advocacy"
rule, recipients would be unable to tell whether they had
used federal funds to underwrite proscribed activities:
"'[M]en of common intelligence must necessarily guess at [the
rule's] meaning.'" Hynes v. Mayor and Council of Oradell,

21 Similar consequences may be expected to follow from
the rule's proscription of the use of federal funds to
underwrite "communications" with public officials or
government bodies -- a proscription that theoretically
could reach newspaper advertisements, public speeches,
testimony before government bodies, one-on-one social
contact with officials, or, indeed, any message uttered
within earshot of a public servant.

228

425 U.S. 610, 620 (1976), quoting Connally v. General
Construction Co. , 269 U.S. 385, 391 (1926).

Government officials, on the other hand, would
have no guide other than their own prejudices for
determining whether a particular activity of a particular
recipient is proscribed; the potential for "'arbitrary and
discriminatory enforcement'" is clear, see Smith v.
Goguen , 415 U.S. 566, 573 (1974), for the rule plainly
"furnishes a convenient tool for 'harsh and discriminatory
enforcement . . . against particular [organizations]
deemed to merit [official] displeasure. ' " Papachristou v.
City of Jacksonville , 405 U.S. 156, 170 (1972), quoting
Thornhill v. Alabama , 310 U.S. 8-8, 97-98 (1940).

Thus, for example, an arts group's performance
of a play with an anti-war theme could be construed as
"political advocacy" intended to influence public opinion
against increased military expenditures or some aspect of
current foreign policy; a corporate executive's address to a
meeting of the Business Roundtable on some issue of topical
interest could be construed as "political advocacy" intended
to shape opinion on that issue, and hence to "influence"
governmental decisions; or the sponsorship by a group of
state and county governments of a forum on issues of concern
to such governments could be construed as "political
advocacy," intended as a "communication" with

229

those public officials who attend the forum, or who are
otherwise apprised of the proceedings, for the purpose of
"influencing" governmental decisions.

In such cases, much could turn on the message es-
poused, when government officials undertook to decide whether
or not the expression at issue constituted "political advo-
cacy." The First Amendment cannot countenance any such
regime of arbitrary government power; the chilling potential
for such subjective, content-based determinations by govern-
ment is sufficient to render such vague language unconstitu-
tional on its face. See , e.g. , Big Mama Rag, Inc. v. United
States , 631 F.2d 1030, 1034-39 (D.C. Cir. 1980) (invalidating
Treasury regulation definition o-f "educational" on vagueness
grounds). 22 For this reason, too, the proposed rule
must be rejected.

III. The "Political Advocacy" Rule Unconstitu -
tionally Discriminates Among Those To Whom
It Will Directly or Indirectly Apply.

The final set of objections to the "political
advocacy" rule is perhaps the most telling, for these
objections go to the fundamental sincerity of the rule.

22 Although in some circumstances a narrowing con-
struction of vague language may avoid the "constitutional
deficiencies" of such vagueness, Buckley v. Valeo , 424
U.S. at 43, no such narrowing construction is available
here, where the proposed rule encompasses virtually all
speech that touches on "political" issues, and not simply
speech, for example, "advocat [ ing] the election or defeat
of a clearly identified candidate for federal office."
Id. at 44 (footnote omitted).

230

Even a cursory review of the rule's provisions reveals at
once that the rule's target is not the use of federal
funds to underwrite "political advocacy" as such, but
rather the use of federal funds for such purposes without
a special invitation from the government to do so. Thus,
the rule excludes from the definition of "political
advocacy" the provision of "technical advice or
assistance" to a governmental body at its request, Sec.
(c)(2), and participation in litigation as an amicus
curiae if the federal contract or grant expressly so
authorizes, Sec. (c)(3).

Needless to say, the provision of "technical
advice and assistance" to a gove-rnmental body may be far
more influential on governmental decisions than an adver-
tisement addressed to the very same subject in the
Washington Post , and there is no rational basis at all for
designating amicus curiae participation as "political
advocacy" only when the government has not expressly
authorized it. 2 ^ These exemptions, then, discrim-
inate between those whom the government has invited to
influence its decisions, and those to whom it has extended
no such invitation.

23 Although the Acting Deputy Associate Director for
Administration correctly notes that "attempts to influence
policy through the judicial process are a form of
political advocacy," 48 Fed. Reg. 3350 (1983), that fact
only makes it more difficult, not easier, to justify
government restrictions on litigation activity.

231

In addition, the "political advocacy" rule dis-
criminates between those organizations that "acknowledge"
their "political advocacy" as a "substantial organiza-
tional purpose" and those that do not, Sec. (d)(1). The
cost of such candor under the rule is that any use of
federal grant or contract funds to support such organiza-
tions is automatically disallowed. Sec. (b)(6). A more
straightforward penalty for engaging in protected speech
is difficult to imagine.

Finally, the proposed rule discriminates among
contractors and grantees on the basis of the pressures
they are perceived to exert on their employees to join or
support other organizations, or -to -engage in "political
advocacy" off the job. Sec. (f)(1). These discrimina-
tions are the most bizarre of all those embodied in the
proposed rule, for they disallow an employee's entire
salary not on the basis of what the employee does for the
contractor or grantee, but rather on the basis of what the
employee does for some other organization with his own
money -- or what he does on his own, with or without
making any expenditure at all. Thus, under the proposed
rule, the salary costs of individuals who are "required or
induced" to join or pay dues to any "political advocacy"
organization other than a labor union are totally
disallowed, Sec. (f)(1)(b), as are the salary costs of

232

individuals who are "required or induced" to engage in
"political advocacy" during non-working hours. Id .

These discriminations are objectionable on at
least two grounds. First , what it means for a contractor
or grantee to "require or induce" an employee to join or
support another organization, or to engage in "political
advocacy" off-hours, is an unanswered question under the
proposed rule — an unanswered question that invites the
arbitrary exercise of government power at the expense of
First Amendment freedoms. For example, if most of the
employees of a nonprofit organization happen to belong to
the American Civil Liberties Union, will that fact give
rise to an inference that the nonprofit organization has
somehow "induced" its employees to join the ACLU? What is
the test? Whose burden of proof? Or if many of an
organization's employees undertake activities on behalf of
anti-abortion groups in their off-hours, would that fact
give rise to an inference that the organization had
somehow "induced" its employees to engage in "political
advocacy" off the job? What is the test? Whose burden of
proof?

By disallowing the employee's entire salary
under either circumstance, the rule will not simply
discourage contractors and grantees from "requiring" or
"inducing" their employees to join or support "political
advocacy" organizations or to engage in "political

233

advocacy" off the job; the result will be that employees
of .contractors and grantees will themselves shy away from
membership in or support for disfavored organizations or
activities off-hours, lest their conduct be somehow
"traced" to their employers and their salaries accordingly
disallowed. Whether viewed as a chill on the exercise of
protected rights either by contractors and grantees or by
their employees, this aspect of the "political advocacy"
rule clearly violates the First Amendmement.

Second, even assuming that the government could
legitimately aim to assure that salaries paid with federal
funds by contractors or grantees could not be channeled to
disfavored organizations or acti-vities, total disallowance
of salaries used to any degree for such purposes is
plainly an unjustifiable burden. More fundamentally, this
aspect of the proposed rule impermissibly discriminates
between organizations that may be supported by
contributions from employees of contractors or grantees at
the behest of their employers, and those that may not.
Why labor unions, but not other "political advocacy"
organizations, may benefit from employee contributions at
the behest of contractors or grantees is wholly
unexplained. And the rule's more general discrimination
between "political advocacy" organizations and other
organizations for disallowance purposes is constitutionally
untenable as well.

CONCLUSION

In sum, the "political advocacy" rule is riddled
with constitutional infirmities, and, for the reasons set
forth above, the American Civil Liberties Union urges that
the proposed rule not be promulgated.

234

ACLU Submissions
to Additional Questions
from Chairman Jack Brooks

Question 1: Is there statutory -authority for the

Administration's proDosed rule changes?

Answer: Although we have undertaken a review
solely of the constitutional issues
raised by the Administration's proposed
rule, the analysis of the Administration's
statutory authority for the rule, prepared
by Jack Maskell, Legislative Attorney,
Congressional Research Service, appears
sound.

Question 2: Would the Administration's proposed rule
changes favor the awarding of grants and
contracts to organizations that are
willing to give up their right to narticit>ate
in the governmental process?

Answer: Yes. The proposed rule changes would do so
by virtue of their draconian disallowance
Drovisions, which would forbid reimbursement
of any portion of the salary of any person
who devoted any time to any "political advo-
cacy," or any portion of the expense of any
other item devoted in any degree to "political
advocacy." As a result of such disallowance
. provisions, a contractor would be reauired
to split, amoeba-like, in two in order to
perform under a contract or grant and, at
the same time, engage in "political advocacy."
Few contractors or grantees could bear the
expense of doing so; those who undertook to
perform contracts and grants would, as a
result, find their ability to engage in
"political advocacy" using non - government funds
severely restricted, and their ability to
participate in the governmental process
drastically curtailed. In addition, the
very thrust of the proposed rule -changes is
to proscribe participation in the governmental
process under a contract or grant; by definition,
therefore, the proposed rule changes would favor
those organizations who were willing to perform
contracts or grants that precluded participation
in the governmental processes using government
funds .

Question 3:

Answer :

Would this rule encourage favoritism among
groups in that only those who receive no
Federal funds or those who are expressly
invited to communicate with the Government
would be allowed to do so without penalty?

Yes. The rule would permit the use of
government funds to underwrite "political
advocacy" by those who receive a special
invitation from government officials or
bodies to do so; those whom government
officials did not favor, and thus did not
invite to speak, would be precluded from
speaking on an equal footing with those
whom government officials did favor, and
hence invited to speak.

235

Mr. Horton. We next will hear from Mr. Donald G. Jones, ex-
ecutive secretary of the Wisconsin Community Action Program As-
sociation, Inc., in Madison, Wis.

Mr. Jones formerly was the executive director of the Community
Action Commission for the city of Madison and Dane County, Wis.

He also was a training officer for the Leadership Institute for
Community Development here in Washington and served nearly 12
years in the U.S. Army with service in Germany and the Republic
of Vietnam. He serves on the boards of a number of community or-
ganizations and has a degree in political science from the Universi-
ty of Wisconsin.

STATEMENT OF DONALD G. JONES, EXECUTIVE SECRETARY, WIS-
CONSIN COMMUNITY ACTION PROGRAM ASSOCIATION, INC.,
MADISON, WIS.

Mr. Jones. Mr. Chairman, thank you very much for permitting
me to be here today.

Mr. Chairman and members of the House Government Oper-
ations Subcommittee on Legislation, I wish to thank you for provid-
ing me this opportunity to appear before you today to comment on
the OMB proposed regulation that appeared in the January 24 Fed-
eral Register on Provisions for Cost Accounting Principles for Non-
profit Organizations under A-122.

I understand that these regulations are to be revised shortly but
my concerns on this issue are fundamental and generally applica-
ble.

Mr. Chairman, I wish to take a few minutes to highlight several
points and respectfully request that my prepared testimony be
made part of your hearing record. This prepared testimony has ap-
pended to it a list of nonprofit organizations in Wisconsin that
have asked me to speak on their behalf and I also request permis-
sion to provide the committee with the complete list within the
next few days.

These organizations work with and on behalf of low-income fami-
lies, children, senior citizens, handicapped, and blind persons and
the developmentally disabled and mentally ill.

Mr. Chairman and committee members, as a program adminis-
trator who has been involved with human service programs for
more than 14 years, I ask that the proposed revisions of A-122 be
carefully scrutinized for the impact that they will have on the ef-
fective, efficient operation of both nonprofit organizations and gov-
ernment agencies at the Federal, State, and local level.

Mr. Horton. I might say, parenthetically, I have heard from a
number of my community action groups in my congressional dis-
trict, which is the 29th District of New York, and I certainly am
concerned about this issue, as you are. Your testimony is very good
with regard to the views of the community action programs.

Mr. Jones. I appreciate your concern, Mr. Horton.

My concerns are as follows: First, at the outset, it is important to
note that even without the adoption of the proposed revisions to A-
122 there is no question that nonprofit organizations may not lobby
or participate in political action with Federal grant or contract

20-644 0—83 16

236

funds. Clear requirements to this effect have been enacted by Con-
gress.

The nonprofit organizations opposing these regulations do not in
any way challenge the validity or rationale of these requirements.
Nor do the organizations challenge the enforcement mechanisms
designed and implemented by Congress and the administration to
make sure that these requirements are met.

Such enforcement efforts typically include program audits, gen-
eral accounting investigations, and other means of assuring that
Federal funds are not used for lobbying and political action.

The opposition to the A- 122 revisions revolves around those pro-
visions which are considered to be unnecessary and illegal expan-
sions of the existing requirements.

Second, the proposed revisions would expand the scope of re-
stricted activities to include virtually all forms of participation in
governmental decisionmaking at the Federal, State, and local level.

Thus, for example, the circular's restrictions would apply to
almost every effort to communicate at all levels of government
with officials or employees or the general public on administrative
decisions or policies.

In Wisconsin private nonprofit and charitable organizations such
as those I represent here today interact regularly with agencies at
the town, village, city, county, and State level as well as with Fed-
eral agencies.

In our State, nonprofits are both officially encouraged and ex-
pected to freely communicate with elected and appointed officials
and administrators on technical and policy matters affecting these
groups and individuals.

We in Wisconsin perceive advocacy and technical cooperation as
a positive plus.

This proposed revision would reach out from the Federal level of
Government to thwart and disrupt the historic cooperation be-
tween Government and nonprofit organizations which has resulted
over the years in outstanding services and strong governmental fi-
nancial and policy leadership in assisting the disadvantaged and
the community.

I currently serve on the board of directors of the Wisconsin
Council on Human Concerns which was founded by the Governor
of the State over 100 years ago to provide a means through which
governmental leaders, professional human service providers and,
community leaders can regularly confer and actively work with the
State to improve services and policies.

The council is comprised of leaders in the private sector, the Gov-
ernment, and nonprofit organizations of all kinds. This revision of
A-122 would make the participation of many members in this his-
toric group impossible and in so doing undermine the value and ef-
fectiveness of this successful effort.

Third, I am concerned that these regulations seek to interfere
with and regulate communications and relationships between non-
profit organizations and the general public.

In response to the increased need for assistance to individuals
and families and cutbacks in resources from all quarters, nonprofit
organizations came together 2 years ago in a broad working coali-
tion called the Wisconsin Difference.

237

The Wisconsin Difference Coalition has three major goals: (1) to
assess the absolute minimum needs in human services; (2) to commu-
nicate to State and local governments our best professional assess-
ment on solutions to meet those needs; and (3) to insure cooperation
and coordination of programs to maximize effective allocation of
scarce resources.

This proposal would damage the coalition by: (A) It would shut
off our ongoing dialog with governments on how to stretch the
available dollars with the maximum of services possible.

For example, as knowledgeable technicians, we have been able to
analyze and prioritize key programs which meet critical needs and
have both low operational budgets and high cost effectiveness.
These programs will be retained in the State budget because they
prevent high remedial expenditures and will pay for themselves in
the short and long term.

(B) It would drastically curtail, if not eliminate, the dialog within
the human service agency community which is vital to the efficient
delivery of services.

Most of the agencies involved have Federal grants and contracts.
A few do not. Those with Federal dollars would rightfully be fear-
ful that after-the-fact costs charged to Federal grants could be dis-
allowed merely because they had participated in discussions with
agencies who, with private funds, had spoken out on behalf of their
constituencies in a manner defined by OMB as political activity. It
would have a deep chilling effect on all. It has begun to do so al-
ready.

Fourth, the adoption of the proposed A- 122 revisions would result
in added costs and paperwork for the Federal Government and its
grantees and contractors.

Many nonprofit organizations are relatively small and receive
funds from various public and private resources. Cost sharing, or
cost allocation, is the common way for these organizations to maxi-
mize the use of resources, including Federal dollars.

A Federal grant may pay for one-half of a typewriter, or two-
thirds of the time of a staff person. The proposed restrictions would
eliminate this way of doing business.

A Federal grant would have to pay for the full cost of typewriter
or staff persons, even if only part-time use was required.

Another problem would be presented concerning the time of an
executive director who is responsible for overseeing the operation
of the agency which may run programs funded with Federal, State,
and private money.

Grants and contracts usually demand a share of the time by the
executive director to assure top-level management and accountabil-
ity. The board of directors of any organization also demands that
the chief executive be fully responsible for all operations.

The proposed regulations would make it impossible for any ex-
ecutive director to fulfill both these essential functions. Thus, this
regulation would reach far beyond the Federal grant activity or
contract and dictate what a private corporation, chartered under
State law, can and cannot do in carrying out the provisions of that
charter with private funds.

Mr. Chairman and members of the committee, the proposed revi-
sions of A- 122 reach out and attack the rights and obligations of

238

the private sector as well as voluntary organizations which have
both Federal and private dollars, to speak out on behalf of low-
income families, of disabled and mentally ill people, of young chil-
dren and of frail senior citizens, who cannot speak for themselves,
and depend on our help for day to day survival.

At this point it may be well to point out there are many types of
groups to be affected by the proposed A- 122 revisions and their
counterparts for Federal contracts: large national service organiza-
tions and private companies, as well as smaller local organizations
which provide direct help to individuals.

Community action agencies are a prime example of this latter
category. Unlike the larger organizations, CAAS, and the groups
like them, simply will not be able to participate in the kind of free-
speech activities covered by the proposed A- 122 revisions if they
cannot mix or allocate costs in some reasonable way.

They cannot afford to have two of everything: two executive di-
rectors, two buildings, two printing presses, et cetera, one for feder-
ally funded activity and one for communication to Federal, State,
and local government officials and the public regarding matters
critical to their programs. Larger organizations can do that. Small-
er ones, particularly those serving the poor, cannot.

Along these lines I must express concern about the most recent
issuance from OMB in which the administration indicated several
areas in which it was actively soliciting specific proposals from af-
fected parties.

These areas went primarily to the definition of the term "politi-
cal advocacy." They did not address the cost allocation issue so
critical to the smaller nonprofits.

The issuance of this paper and other recent developments sug-
gest that OMB may be offering a compromise to quell the tremen-
dous controversy regarding A- 122. The only problem is the appar-
ent direction of the compromise would help only large organiza-
tions, not the smaller poverty organizations upon whose behalf I
speak. They would remain out in the cold.

Fifteen years ago this month, February, I went through the Tet
offensive in Vietnam. Little did I realize that I would have to fight
again to permit the private, voluntary sector in the United States
to communicate with Government agencies that fund human serv-
ice programs or the needy citizens who are served. I urge you to
look with great skepticism on these new restrictions and thank you
for holding hearings.

I am particularly pleased with the level of skepticism which you
and the chairman have expressed this morning. I want to thank
you very much for holding these hearings and for giving this a
public airing.

[Mr. Jones' prepared statement follows:]

239

TESTIMONY OF

DONALD JONES
MADISON, WISCONSIN

BEFORE

HOUSE GOVERNMENT OPERATIONS
SUBCOMMITTEE ON LEGISLATION

MARCH 1, 19 83

ORGANIZATIONS REPRESENTED

LEAGUE OF WOMEN VOTERS-WISCONSIN
WISCONSIN COMMUNITY ACTION PROGRAM ASSOCIATION, INC.

WISCONSIN NUTRITION PROJECT
WISCONSIN ASSOCIATION OF FAMILY AND CHILDREN' AGENCIES

UNITED CEREBRAL PASLY OF WISCONSIN

CENTER FOR PUBLIC REPRESENTATION

WISCONSIN COUNCIL ON HUMAN CONCERNS

WISCONSIN DISABILITY COALITION

WISCONSIN EARLY CHILDHOOD ASSOCIATION

YOUTH POLICY AND LAW CENTER

ALLIANCE FOR THE MENTALLY ILL

WISCONSIN ASSOCIATION OF RUNAWAY SERVICES

PLANNED PARENTHOOD OF WISCONSIN
NATIONAL ASSOCIATION OF SOCIAL WORKERS, WISCONSIN CHAPTER

WI SCONS IN WOMEN'S NETWORK

WISCONSIN ASSOCIATION OF HEAD START DIRECTORS

240

MR CHAIRMAN AND MEMBERS OF THE HOUSE GOVERNMENT OPERATIONS SUBCOMMITTEE
ON LEGISLATION , I WISH TO THANK YOU FOR PROVIDING ME THIS OPPORTUNITY
TO APPEAR BEFORE YOU TODAY TO COMMENT ON THE OMB PROPOSED REGULATION
THAT APPEARED IN THE JANUARY 24th FEDERAL REGISTER ON REVISIONS FOR
COST ACCOUNTING PRINCIPLES FOR NON PROFIT ORGANIZATIONS UNDER A-122.
I UNDERSTAND THAT THESE REGULATIONS ARE TO BE REVISED SHORTLY' BUT MY
CONCERNS ON THIS ISSUE ARE FUNDAMENTAL AND GENERALL^'APPLICABLE". -

MR CHAIRMAN, I WISH- TO TAKE A FEW MINUTES TO HIGHLIGHT SEVERAL POINTS
AND RESPECTFULLY REQUEST THAT MY PREPARED TESTIMONY BE MADE PART OF
YOUR HEARING RECORD. THIS PREPARED TESTIMONY HAS APPENDED TO IT A
LIST OF NON PROFIT ORGANIZATIONS IN WISCONSIN THAT HAVE ASKED ME TO
SPEAK ON THEIR BEHALF AND I ALSO REQUEST PERMISSION TO PROVIDE THE
COMMITTEE WITH THE COMPLETE LIST WITHIN THE NEXT FEW DAYS. THESE
ORGANIZATIONS WORK WITH AND ON BEHALF OF LOW INCOME FAMILIES, CHILDREN,
SENIOR CITIZENS, HANDICAPPED AND BLIND PERSONS AND THE DEVELOPMENTALLY
DISABLED AND MENTALLY ILL.

MR CHAIRMAN AND COMMITTEE MEMBERS, AS A PROGRAM ADMINISTRATOR, WHO

HAS BEEN INVOLVED WITH HUMAN SERVICE PROGRAMS FOR MORE THAN li YEARS,

I ASK THAT THE PROPOSED REVISIONS OF A-122 BE CAREFULLY SCRUTININZED

FOR THE IMPACT THAT THEY WILL HAVE ON THE EFFECTIVE, EFFICIENT OPERATION O

30TH NON PROFIT ORGANIZATIONS AND GOVERNMENT AGENCIES AT THE FEDERAL

STATE AND LOCAL LEVEL. .MY CONCERNS ARE AS FOLLOV7S :

FIRST AT THE OUTSET, IT IS IMPORTANT TO NOTE THAT EVEN WITHOUT

THE ADOPTION OF THE PROPOSED REVISIONS TO A-122, THERE IS NO QUESTION
THAT KON PROFIT ORGAN! ZATIONS KAY NOT LOB3Y OR PARTICIPATE IN POLITICAL

241

ACTION WITH FEDERAL GRANT OR CONTRACT FUNDS. CLEAR REQUIREMENTS TO
THIS EFFECT HAVE BEEN ENACTED BY CONGRESS. THE NON PROFIT ORGANIZATIONS
OPPOSING THESE REGULATIONS DO NOT IN ANY WAY CHALLENGE THE VAILIDITY
OR RATIONALE OF THESE REQUIREMENTS. NOR DO THE ORGANIZAIONS CHALLENGE
THE ENFORCEMENT MECHANISMS DESIGNED AND IMPLEMENTED BY CONGRESS
AND THE ADMINISTRATION TO MAKE SURE THAT THESE REQUIREMENTS ARE MET
SUCH ENFORCEMENT EFFORTS TYPICALLY INCLUDE PROGRAM AUDITS, GENERAL
ACCOUNTING INVESTIGATIONS AND OTHER MEANS OF ASSURING THAT
FEDERAL FUNDS ARE NOT USED FOR LOBBYING AND POLITICAL ACTION. THE
OPPO SITION TO THE A-122 REVISIONS REVOLVES AROUND THOSE PROVISIONS
WHICH ARE CONSIDERED TO BE UNNECESSARY AND ILLEGAL EXPANSIONS OF
THE EXISTING REQUIREMENTS .

SECOND THE PROPOSED REVISIONS WOULD EXPAND THE SCOPE OF RESTRICTED
ACTIVITIES TO INCLUDE VIRTUALLY ALL FORMS OF PARTICIPATION IN
GOVERNMENTAL DECISION MAKING AT THE FEDERAL, STATE AND LOCAL LEVEL.
THUS FOR EXAMPLE, THE CIRCULAR'S RESTRICTIONS WOULD APPLY TO ALMOST
EVERY' EFFORT TO COMMUNICATE AT ALL LEVELS OF GOVERNMENT WITH OFFICIALS
OR EMPLOYEES OR THE GENERAL PUBLIC ON ADMINISTRATIVE DECISIONS OR
POLICIES. IN WISCONSIN, PRIVATE NON PROFIT AND CHARITABLE ORGANIZATIONS
SUCH AS THOSE I REPRESENT HERE TODAY, INTERACT REGULARLY WITH AGENCIES
AT THE TOWN, VILLAGE, CITY, COUNTY AND STATE LEVEL AS WELL AS WITH
FEDERAL AGENCIES. IN OUR STATE, NON PROFITS ARE 30TH OFFICALLY
ENCOUP.AGED AND EXPECTED TO FREELY COMMUNICATE WITH ELECTED AND APPOINTED
OFFICIALS AND ADMINISTRATORS ON TECHNICAL AND POLICY MATTERS AFFECTING
THESE GROUPS AND INDIVIDUALS. 'WE, IN WISCONSIN, PRECEIVE ADVOCACY
AND TECHNICAL COOPERATION AS A POSITIVE VALUE. THIS PROPOSED REVISION
WOULD REACH OUT FRO" THE FEDERAL LEVEL OF GOVERNMENT TO THWART AND

DISRUPT THE HISTORIC COOPERATION BETWEEN" GOVERNMENT AND NCN PROFIT

242

ORGANIZATIONS WHICH HAS RESULTED OVER THE YEARS IN OUTSTANDING
SERVICES AND STRONG GOVERNMENTAL FINANCIAL AND POLICY LEADERSHIP
IN ASSISTING THE DISADVANTAGED AND THE COMMUNITY . I CURRENTLY SERVE
ON THE BOARD OF DIRECTORS OF THE WISCONSIN COUNCIL ON HUMAN CONCERNS

WHICH WAS FOUNDED BY THE GOVERNOR OF THE STATE OVER 100 YEARS AGO
TO PROVIDE A MEANS THROUGH WHICH GOVERNMENTAL LEADERS, PROFESSIONAL
HUMAN SERVICE PROVIDERS AND COMMUNITY LEADERS CAN REGULARLY CONFER
AND ACTIVELY WORK WITH THE STATE TO IMPROVE SERVICES AND POLICIES.
THE COUNCIL IS COMPRISED OF LEADERS IN THE PRIVATE SECTOR, THE
GOVERNMENT AND NON PROFIT ORGANIZATIONS OF ALL KINDS. THIS REVISION
OF A-122 WOULD MAKE THE PARTICIPATION OF MANY MEMBERS IN THIS
HISTORIC GROUP IMPOSSIBLE AND IN SO DOING UNDERMINE THE VALUE :AND
EFFECTIVENESS OF THIS SUCCESSFUL EFFORT.

THIRD I AM CONCERNED THAT THESE REGULATIONS SEEK TO INTERFERE WITH
AND REGULATE COMMUNICATIONS AND RELATIONSHIPS BETWEEN NON PROFIT
ORGANIZATIONS AND THE GENERAL PUBLIC. IN RESPONSE TO THE INCREASED
NEED FOR ASSISTANCE TO INDIVIDUALS AND FAMILIES AND CUTBACKS IN RESOURCES
FROM ALL QUARTERS, NON PROFIT ORGANIZATIONS CAME TOGETHER TWO YEARS
AGO IN A BROAD WORKING COALITION CALLED THE WISCONISIN DIFFERENCE .
WISCONSIN DIFFERENCE HAS THREE IMPORTANT GOALS: 1) TO ASSESS THE ABSOLUTE
MINIMUM NEEDS IN HUMAN SERVICES; 2) TO COMMUNICATE TO STATE AND LOCAL
GOVERNMENTS OUR BEST PROFESSIONAL ASSESMENT ON SOLUTIONS TO MEET THOSE
NEEDS AND 3) TO INSURE COOPERATION AND COORDINATION OF PROGRAMS TO
MAXIMIZE EFFECTIVE ALLOCATION OF SCARCE RESOURCES. THIS PROPOSAL
WOULD SEVERELY DAMAGE THE COALITION BY:

A) IT WOULD SHUT OFF OUR ONGOING DIALOGUE WITH GOVERNMENTS ON HOW
TO STRETCH THE AVAILABLE DOLLARS WITH THE MAXIMUM OF SERVICES
POSSIBLE. FOR EXAMPLE, AS KNOWLEDGEABLE TECHNICIANS , WE HAVE

243

BEEN ABLE TO ANALYZE AND PRIORITIZE KEY PROGRAMS WHICH
MEET CRITICAL NEEDS AND HAVE BOTH LOW OPERATIONAL BUDGETS
AND HIGH COST EFFECTIVENESS. THESE PROGRAMS WILL BE
RETAINED IN THE STATE BUDGET BECAUSE THEY PREVENT
REMEDIAL EXPENDITURES AND WILL PAY FOR THEMSELVES IN THE
SHORT AND LONG TERM.
■ B) IT WOULD DRASTICALLY CURTAIL, IF NOT ELIMINATE, THE DIALOGUE
WITHIN THE HUMAN SERVICE AGENCY COMMUNITY WHICH IS VITAL TO
THE EFFICIENT DELIVERY OF SERVICES. MOST OF THE AGENCIES INVOLVED
HAVE FEDERAL GRANTS AND CONTRACTS, A FEW DO NOT. THOSE WITH
FEDERAL DOLLARS WOULD RIGHTFULLY BE FEARFUL THAT AFTER THE
FACT, COSTS CHARGED TO FEDERAL GRANTS COULD BE DISALLOWED
MERELY BECAUSE THEY HAD PARTI CPATED IN DISCUSSIONS WITH AGENCIES
WHO, WITH PRIVATE FUNDS, HAD SPOKEN OUT ON BEHALF OF THEIR
CONSTITUENCIES IN' A MANNER DEFINED BY OMB AS "POLITICAL
ACTIVITY." IT WOULD HAVE A DEEP CHILLING EFFECT ON ALL.

FOURTH , THE ADOPTION OF THE PROPOSED A-122 REVISIONS WOULD RESULT IN
ADDED COSTS AND PAPERWORK FOR THE FEDERAL GOVERNMENT AND ITS GRANTEES
AND CONTRACTORS. MANY NON PROFIT ORGANIZATIONS ARE RELATIVELY SMALL
AND RECEIVE FUNDS FROM VARIOUS PUBLIC AND PRIVATE RESOURCES. COST
SHARING - OR COST ALLOCATION - IS THE COMMON WAY FOR THESE ORGANIZATIONS
TO MAXIMIZE THE USE OF RESOURCES, INCLUDING FEDERAL DOLLARS. A FEDERAL
GRANT KAY PAY FOR ONE HALF OF A TYPEWRITER, OR TWO THIRDS OF THE TIME
OF A STAFF PERSON. THE PROPOSED RESTRICTIONS WOULD ELIMINATE THIS
WAY OF DOING 3'JSINESS. A FEDERAL GRANT WOULD HAVE TO PAY FOR THE FULL
COST OF TYPEWRITER CP. STAFF PERSONS - EVEN IF ONLY PART TIME USE WAS

244

REQUIRED. ANOTHER PROBLEM WOULD BE PRESENTED CONCERNING THE TIME

OF AN EXECUTIVE DIRECTOR WHO IS RESPONSIBLE FOR OVERSEEING THE OPERATION

OF THE AGENCY WHICH MAY RUN PROGRAMS FUNDED WITH FEDERAL, STATE AND

PRIVATE MONEY. GRANTS AND CONTRACTS USUALLY DEMAND A SHARE OF THE

TIME BY THE EXECUTIVE DIRECTOR TO ASSURE TOP LEVEL MANAGEMENT. AND

ACCOUNTABILITY. THE BOARD OF DIRECTORS OF ANY ORGANI ZATION ALSO

DEMAND THAT THE CHIEF EXECUTIVE BE FULLY RESPONSIBLE FOR ALL

OPERATIONS. THE PROPOSED REGULATIONS WOULD MAKE IT IMPOSSIBLE FOR

ANY EXECUTIVE DIRECTOR TO FULFILL BOTH THESE ESSENTIAL FUNCTIONS.

THUS, THIS REGULATION WOULD REACH FAR BEYOND THE FEDERAL GRANT ACTIVITY

OR CONTRACT AND DICTATE WHAT A PRIVATE CORPORATION, .CHARTERED UNDER

STATE LAW, CAN AND CAN NOT DO IN CARRYING OUT THE PROVISIONS OF

THAT CHARTER KITH PRIVATE FUNDS.

MR CHAIRMAN AND MEMBERS OF THE COMMITTEE, T HE PROPOSED REVISIONS OF
A-12 2 REACH OUT AND ATTACK THE RIGHTS AND OBLIGATION S OF THE PRIVATE
SECTOR AS WELL AS VOLUNTARY ORGANIZATIONS WHICH HAVE BOTH FEDERAL
AND PRIVATE DOLLARS - TO SPEAK OUT ON BEHALF OF LOW INCOME FAMILIES,
OF DISABLED AND MENTALLY ILL PEOPLE, OF YOUNG CHILDREN AND OF FRAIL
SENIOR CITIZENS- WHO CAN NOT SPEAK FOR THEMSELVES AND DEPEND ON OUR
HELP FOR DAY TO DAY SURVIVAL.

AT THIS POINT , IT MAY BE WELL TO POINT OUT THERE ARE MANY TYPES OF
GROUPS TO BE AFFECTED BY THE PROPOSED A-122 REVISONS AND THEIR COUNTER-
PARTS FOR FEDERAL CONTRACTORS: LARGE NATIONAL SERVICE ORGANIZATIONS
AND PRIVATE COMPANIES, AS WELL AS SMALLER LOCAL ORGANIZATIONS WHICH
PROVIDE DIRECT HELP TO INDIVIDUALS. COMMUNITY ACTION AGENCIES ARE A
PRIME EXAMPLE OF THIS LATTER CATEGORY. UNLIKE THE LARGER ORGANIZATIONS,

245

CAAS — AND THE GROUPS LIKE THEM — SIMPLY WILL NOT BE ABLE TO PARTI-
CIPATE IN THE KIND OF FREE SPEECH ACTIVITIES COVERED BY THE PROPOSED
A-122 REVISIONS IF THEY CANNOT MIX OR ALLOCATE COSTS IN SOME REASONABLE
WAY. THEY CANNOT AFFORD TO HAVE TWO OF EVERYTHING: TWO EXECUTIVE
DIRECTORS, TWO BUILDINGS, TWO PRINTING PRESSES, ETC. — ONE FOR
FEDERALLY FUNDED ACTIVITY AND ONE FOR COMMUN1 CATION TO FEDERAL, STATE,
AND LOCAL GOVERNMENT OFFICIALS AND THE PUBLIC REGARDING MATTERS CRITICAL
TO THEIR PROGRAMS. LARGER ORGANIZATIONS CAN DO THAT, SMALLER ONES —
PARTICULARLY THOSE SERVING THE POOR — CANNOT.

ALONG THESE LINES, I MUST EXPRESS CONCERN ABOUT THE MOST RECENT ISSUANCE
FROM OMB IN WHICH THE ADMINISTRATION INDICATED SEVERAL AREAS IN WHICH IT
WAS "ACTIVELY SOLICITING SPECIFIC PROPOSALS" FROM AFFECTED PARTIES.
THESE AREAS WENT PRIMARILY TO THE DEFINITION OF THE TERM "POLITICAL
ADVOCACY," THEY DID NOT ADDRESS THE COST ALLOCATION ISSUE SO CRITICAL
TO THE SMALLER NON PROFITS.

THE ISSUANCE OF THIS PAPER AND OTHER RECENT DEVELOPMENTS SUGGEST THAT
OMB SOON MAY BE OFFERING A COMPROMISE TO QUELL THE TREMENDOUS CONTROVERSY
REGARDING A-122. THE ONLY PROBLEM IS: THE APPARENT DIRECTION OF THE
COMPROMISE WOULD HELP ONLY LARGE ORGANIZATIONS, NOT THE SMALLER POVERTY
ORGANIZATIONS UPON WHOSE BEHALF I SPEAK. THEY WOULD REMAIN OUT IN
THE COLD.

FIFTEEN YEARS AGO THIS MONTH, I WENT THROUGH THE TET OFFENSIVE IN
VIET NAM. LITTLE DID I REALIZE THAT I WOULD HAVE TO FIGHT AGAIN TO
PERMIT THE PRIVATE, VOLUNTARY SECTOR IN THE UNITED STATES TO
COMMUNICATE WITH GOVERNMENT AGENCIES THAT FUND HUMAN SERVICE PROGRAMS
OR THE NEEDY CITIZENS WHO ARE SERVED. I URGE YOU TO LOOK WITH GREAT
SKEPTICISM ON THESE NEW RESTRICTIONS AND THANK YOU FOR HOLDING HEARINGS.

246

Mr. Horton. Thank you very much, Mr. Jones.

How will this proposal affect nonprofit organizations' delivery of
services at the local level?

Mr. Jones. I think there is a great deal of concern that the regu-
lations as they are proposed may go directly to the actual services
themselves and define the services as political activity.

In some cases the activity that is required by Federal grants and
contracts or by private funds which are received by organizations
require that there be advocacy on the part of persons who cannot
assist themselves such as children who are up for adoption, refu-
gees who are being placed, blind and disabled, mentally ill persons
who cannot speak for themselves.

If these organizations are prohibited from talking to zoning
boards, to county boards of social services, and to speak with each
other, those organizations which are federally granted and those
which are not, I would fear that the regulation would go directly to
say that the actual provision of service itself becomes a political ac-
tivity under the definition of the revision.

Mr. Horton. Very good point. Thank you very much, Mr. Jones,
and we appreciate your being here with us today.

Our next witness is Bill West, executive director of the Associ-
ation for Retarded Citizens of Pennsylvania, which is headquar-
tered in Harrisburg. I go right by there all the time when I am
driving from here to Rochester, where my district is.

Mr. West has worked in the area of developmental rehabilitation
for over 15 years. He has a master's degree in psychiatric counsel-
ing from the University of Nebraska.

Welcome, Mr. West.

STATEMENT OF WILLIAM A. WEST, EXECUTIVE DIRECTOR,
ASSOCIATION FOR RETARDED CITIZENS, HARRISBURG, PA.

Mr. West. Thank you, Mr. Chairman.

I would like to ask that the written comments be included.

Mr. Horton. We will include your entire statement in the record
if you would like to summarize it.

Mr. West. Yes; after hearing the testimony and questions and all
during the entire day today I would like to make a few points I had
not put in the written testimony.

One is that if these regulations were currently in effect the vast
majority of the folks attending this meeting today would not be al-
lowed to testify .

Another is that if these regulations were currently in effect, non-
profit organizations would have been unable to have informed our
congressional leaders as to the impacts of the administration in
trying to deregulate Public Law 94-142, Education for All Handi-
capped Children Act, which was attempted this past year.

We would also like to point out that if these regulations were in
effect that the role of associations for retarded citizens throughout
the United States in trying to help mentally retarded children
become mainstreamed into the public schools, even to assist a
parent in going through an individualized educational plan process
would probably not be allowed when that involved advocating for
them with local school districts.

247

We would not be allowed to go to bat for a person who is in a
large State public institution.

We would have today probably well over 300,000 individuals in
large warehousing public institutions for the mentally retarded in-
stead of the under 150,000 we currently have, which has been pri-
marily a result of the role of the Association for Retarded Citizens
since the late 1940's in trying to show our society that there are
better ways of serving handicapped citizens.

The group we represent, the 6 million mentally retarded persons
in the United, States, is a group which by and large cannot repre-
sent themselves. We have to be an advocacy organization.

We have been their advocate for some 34 years. And as a result
of that advocacy role we have not only enabled the handicapped in-
dividuals to become more incorporated into society, we have also
saved society untold millions of dollars.

Mr. Horton. What you are saying is that you would be unable to
continue in operation under your present structure if this OMB
proposal were adopted?

Mr. West. Yes, sir, that is absolutely true.

Mr. Horton. I guess you are concerned about the new one, too,
are you not?

Mr. West. Oh, yes; we have been concerned about the fact that
even in the field of mental retardation a lot of people don't know
what the potential or capabilities of the people with mental retar-
dation are.

Mr. Horton. You probably couldn't be on a TV program to try to
raise money for them?

Mr. West. Probably could not, probably could not.

Mr. Horton. I have been on those.

Mr. West. The interesting thing is the cost that would be in-
volved. In Pennsylvania, at least, the cost of institutionalizing a
mentally retarded person runs about $50,000 per year per person.
The Community Services on the other hand in Pennsylvania are
averaging a little over $4,000 per person.

What we are trying to say is there are better ways of doing
things and the best way to learn how to do things is to utilize the
voice of those advocates we have been trying to represent the
handicapped kids for the past 30-plus years.

By imposing these kinds of regulations you prevent Congress
from hearing the voice of the best advocates available and you pre-
vent us from being able to represent the rights and interests of
handicapped people throughout the country.

We would urge Congress — first of all we urge the Office of Man-
agement and Budget — to recognize they have made a terrible mis-
take and throw these out the window.

I am not even sure they need to go back to the drawing board. I
think first they ought to consult with some of the organizations
that are so drastically affected.

Second, I would urge Congress to roundly reject this terribly de-
structive proposed regulation.

I very much appreciate the tone and tenor of what has been
going on today. Thank you very much, Mr. Chairman.

Mr. Horton. Thank you very much, Mr. West. Your statement is
an excellent one and certainly points out what the problems are.

248

We appreciate your being here and waiting so long to come before
the committee. Thank you very much.
[Mr. West's prepared statement follows:]

249

TESTIMONY PRESENTED BY: W. A. WEST, EXECUTIVE DIRECTOR

ASSOCIATION FOR RETARDED CITIZENS, PENNSYLVANIA

They were quietly tucked in the hindmost section of the January 24 FEDERAL
REGISTER innocuously labeled "Cost Principles for Non-profit Organizations." If
it weren't for the inquisitive nature of veteran reporters and the suspicions of
non-profit staffers, the most far-reaching damaging regulations of this Administration
may have been passed over.

Instead non-profit groups are asking the Office of Management and Budget to
withdraw these damaging rules.

The regulations are very broad, but the basis is this - non profit organizations
receiving full or partial federal funding will be prohibited from participating in
what is termed "political advocacy." The definition runs rampantly through the gamut
of advocacy activities, from entering a court case as a "friend of the court" to
contacting a legislator.

I question whether the 0MB can limit federally funded groups' access to the
court system by prohibiting them to enter court cases as an amicus curiae. This seems
an obvious violation of the U.S. Constitution. Thomas Jefferson never mentioned
that access to the court system was tied to a funding source.

The Office of Management and Budget justifies this effort to squelch the voice
of organizations representing the poor, elderly and the handicapped by claiming it
is protecting the first amendment rights of the public. In actuality, these rules,
if enacted would expand the government's control over the activities of private,
federally funded non-profit organizations, especially small ones. In the end,
everyone's rights would be violated.

Two major points emerge from the regulations. First, they would expand
tremendously the definition of "political activities" from the current concern with
legislation and the electoral process to any decision made by governments or officials.

250

Secondly, they would allow large, wealthy organizations to establish a separate
office and to maintain separate staff and facilities so that they could continue
their "political advocacy" while they continue to receive those precious federal
dollars.

Thus, the new regulations set a double standard on lobbying. Only non-profit
organizations with plentiful financial resources to establish a separate office and
staff would be permitted to engage in political advocacy. Poor non-profits would be
prohibited from advocacy even with their private resources.

Under these guidelines federally funded non-profit organizations would be
banned from talking to their legislator, calling their own funding resources in the
administrative branch of state and local government, and entering court as a "friend
of the court." Amazingly enough non-profits would be prohibited from commenting
on regulations such as these. As the Association for Retarded Citizens, Pennsylvania
we are constantly lending our expertise to the Pennsylvania Welfare Department in
need of help in drafting regulations that affect various aspects of retarded citizens'
lives. These regs would eliminate our expert voice.

Congress has already established limitations on lobbying by non-profit
organizations through the Internal Revenue Code and the Crimes Code, as well as in
specific provisions of many enabling laws. By undertaking major, substantial, far-
reaching changes through administrative policy, 0MB has enacted substantive legis-
lation as part of an administrative circular governing cost accounting principles.
This is a usurpation of the Congressional legislative authority which may go well
beyond the scope of OHB's authority.

I hear the wheels of this Administration clicking, saying either take the
money and be quiet or give it up and go it on your own with private money. In the
past few years the economy has made the private dollar a source of continual
competition. Groups that are supposed to be helping the poor and needy find them-
selves pounding the pavement looking for money instead of performing the job they

set out to do in the first place.

251

The Administration repeatedly asks the private sector to take on the responsi-
bility of serving those in need at much less cost to the taxpayer, and private non-
profits can save the government millionsof dollars by matching federal grant monies
with privately raised funds. But this effort to cut-off funds if a group is involved
in political advocacy will only foster a further reduction in service and a greater
dependency on government programs.

Bureaucrats and legislators need to hear from non-profit organizations, whether
they receive federal funds or not. To eliminate the voice of groups representing
retarded citizens, disabled people or the elderly just because they receive federal
dollars is disgraceful.

Don't these groups have a right to represent their constituencies? Wealthy
non-profits will continue to do so; they'll just move their political advocacy efforts
across the street or into another section of the building at a hefty cost to the
government and their contributors.

The public should be ecstatic that groups like the ARC are using their money
to watch the government; to make sure that the legislative and the administrative
branches are doing what the public has mandated them to do. This is a fundamental
principle of our democracy.

It appears that only the wealthy will be permitted to represent their special
interests in the halls of our legislatures if these regs are enacted. This will
create a land of the elite -- forgetting those at the bottom of the social strata
too poor or powerless to perform "political advocacy" on their own.

The ARC is 13,000 members strong and has local chapter affiliates in 55 counties
across Pennsylvania. Many local ARC'S receive federal dollars which will jeopardize
their ability to work with their local legislators if these regulations are enacted.
One of our fundamental principles is assuring through the governmental process that
mentally retarded people are served and served well. We must be able to assure that
they get their fair share of the federal, state and local dollars spent for service
provision. We can't do that if 0MB ties our hands. Without the ARC'S advocacy
efforts the rights of retarded citizens will be forsaken in the political process.
I hope that Congress sees the inherent danger in these 0MB regulations and
will stop this move to cut certain groups out of our political process.

20-644 O— 83 17

252

Mr. Horton. The next witness is Mr. A. G. W. Biddle, president
of the Computer & Communications Industry Association, which he
cofounded in 1972. He is a graduate of the U.S. Military Academy,
class of 1952.

Following service in Korea, he worked in the private sector as an
operations research analyst, a management consultant, director of
diversification for an aerospace company, vice president of plan-
ning for a toy manufacturer, and founder and president of a west
coast management consultant firm.

We are glad to see you again, Mr. Biddle.

STATEMENT OF A. G. W. BIDDLE, PRESIDENT, COMPUTER &
COMMUNICATIONS INDUSTRY ASSOCIATION

Mr. Biddle. It is always a pleasure to be back.

I appreciate the chance to come before you today. As you know
from past exposure to our association, CCIA is an association of
chief executives of some 70 companies engaged in the manufacture
of computer and communications-related hardware and software.

I find it ironic that last week Assistant Attorney General Baxter
suggested that our members should not talk to each other without
tape recorders and now Mr. Stockman tells us that they can't
belong to a trade association and do business with the Government.
Something strange seems to be happening over at the other end of
Pennsylvania Avenue.

The principal purpose of the association was and is to monitor
and report on developments in regulatory and legislative areas af-
fecting our industry, and to provide our members with a means of
expressing their collective views on those developments.

We have been active participants in successful efforts to modern-
ize our Nation's antitrust laws, increase the efficiency and fairness
of Federal ADP procurement, introduce competition into the field
of telecommunications, roll back capital gains taxes in order to re-
store entrepreneuralism to the U.S. economy, and expand the level
of exports of our industry's goods and services.

Only the largest of U.S. corporations can afford to maintain a
full-time Washington presence. For the smaller companies, mem-
bership in their industry's trade association provides the eyes, ears,
and voice that they require in order to have a say in the myriad
regulatory and legislative decisions that affect their companies,
their shareholders, and their employees.

As president of the CCIA my job and that of my staff is political
advocacy for a very large and important sector of American indus-
try. And contrary to comments of the administration, I am not
ashamed the least bit about my responsibility to speak out in the
political arena.

I have reviewed OMB's proposed revision to rules governing the
activities of nonprofit corporations such as ours, and I am alarmed.

One of my member companies has a division that engages in ex-
tensive advanced development work under various Government
contracts. Another of the divisions is in the data processing equip-
ment business, sells to the Government under Federal supply
schedules and competitive bid procedures, and belongs to our asso-
ciation.

253

If the president of the parent company were to testify before this
committee about the data processing industry, would the presi-
dent's salary, expenses and associated overhead be disallowed from
the other division's Government contract?

Would his senior vice president of finance's salary and associated
overhead be disallowed for talking to me for 15 minutes on the
phone about this testimony?

If the president of the parent company participated in a meeting
of the association that his nondefense contract division belonged to,
would his salary and overhead allocation be disallowed?

The vast majority of our member companies sell to the Federal
Government under schedules or through competitive bidding.

What prevents an auditor from asserting that the contract price
includes some allocation of our association's dues and should there-
fore be disallowed in toto? That the president or a vice president of
the company testified on behalf of the association and his salary
and associated expenses should be disallowed?

Are the disallowed salary and associated expenses for the day he
testified, the week, the year, or the duration of the contract?

A member company invites a Member of Congress to address the
company's employees in the company's cafeteria. Is the company
attempting to influence a Federal election? Is the company guilty
of affecting the opinions of the general public or any segment
thereof? Are the salaries of all individuals who had any involve-
ment in inviting, greeting, or introducing the Congressman disal-
lowed? Are the costs associated with the company's plant disal-
lowed because the company cafeteria constitutes more than 5 per-
cent of the usable space in the plant?

Perhaps some may view these as extreme examples. My point is
simply this: OMB Circular A-122 if adopted in any way faintly ap-
proaching its present form and thrust will stifle the extremely im-
portant flow of information and ideas between our Nation's policy-
makers and its industrial leadership.

I have spent the last 10 years of my working career developing
an awareness on the part of our member company executives of
their responsibility to participate in the political process and to
make their knowledge and expertise freely available to regulators
and legislators to the benefit of our Nation.

Slowly and painfully I have caused them to start PAC's or to
contribute to ours. Circular A-122 will lead corporate counsel and
corporate financial executives to advise against continuation of
these activities, or, in the alternative, ending any further sales to
the Government.

In conclusion, Circular A-122 is ill conceived, vaguely drafted,
and an administrative nightmare. To avoid the possibility of disal-
lowance on significant cost items or the threat of debarment or sus-
pension, all companies who do business with the Government are
motivated to withdraw from their trade associations, disband their
PAC's, cease presenting their views to the FCC, SEC, and, finally,
to avoid all contact with any other regulatory or legislative person-
nel at the Federal, State, or local level that did not result from a
specific written request or invitation.

I would hope that the members of this committee, from both
sides of the aisle, will make it known to the administration that

254

OMB Circular A-122 should not only be withdrawn from considera-
tion but that the premises underlying it should also be completely
reconsidered.

I think our country is having enough trouble maintaining our
world leadership in high technology without severing all communi-
cations between the private sector high technology community and
our Nation's policymakers.

Thank you. I would be happy to entertain any questions you
might have.

Mr. Brooks. Thank you very much, Jack. It is a pleasure to have
you here.

Mr. Biddle. Nice to be on the majority side for a change, sir.

Mr. Brooks. Yes. That's right.

Does your organization have purely informational contact with
Government agencies that might be curtailed by the proposed OMB
regulations?

Mr. Biddle. Since our association is 100 percent dues funded it is
my belief that just promulgation of this circular will cause many
members to reconsider or their lawyers to counsel against associ-
ation membership.

It is not unlike the impact that the prudent man rule in ERISA
had on institutional investment in small companies in this country.
They dried up because the lawyers were scared to death to encour-
age investment in a less than Fortune 500 sized company. So, yes,
it will have a very stifling effect on our informational role.

I didn't get a letter inviting me to this hearing. This may be my
last hearing if this thing is passed.

Mr. Brooks. I hope not. I hope not.

Mr. Biddle. We have a lot of fun with OMB at times.

Mr. Horton. I was thinking as you are talking, it will probably
do away with the PAC's, too.

Mr. Biddle. It would.

Mr. Horton. As a matter of fact, a lot of people would like to do
away with them. Maybe this is the way to do it.

Don't answer that question.

Mr. Brooks. Very good testimony.

Thank you.

John Charles Houston of the Fairness Committee Against Tax
Funded Politics, the only witness other than OMB in favor of this
proposal, called in and said he was unable to testify on account of
illness. I hope that is not insignificant.

[Note: Mr. Houston's statement appears in the appendix.]

Mr. Brooks. Our next witness is Mr. Robert T. Thompson, chair-
man of the board of directors of the U.S. Chamber of Commerce.
Mr. Thompson, the senior partner in the Greenville, S.C., law firm
of Thompson, Mann, and Hutson, a bosom friend of Senator Strom
Thurmond

Mr. Thompson. How did you know that?

Mr. Brooks. He lives two doors away.

He was chosen chairman of the chamber's board this past Janu-
ary to succeed Paul Thayer when he joined the Reagan administra-
tion. He is a graduate of Emory University and the Emory Law
School.

255

Mr. Thompson is accompanied today by Christine A. Russell, leg-
islative counsel of the Small Business Center of the U.S. Chamber of
Commerce, and by J. H. Joseph, vice president of domestic policy,
U.S. Chamber of Commerce.

We are delighted to have you here and you can put all of your
statement in the record as submitted and make any comments you
so desire.

STATEMENT OF ROBERT T. THOMPSON, CHAIRMAN, BOARD OF
DIRECTORS, U.S. CHAMBER OF COMMERCE, ACCOMPANIED BY
CHRISTINE A. RUSSELL, LEGISLATIVE COUNSEL, SMALL BUSI-
NESS CENTER, AND J. H. JOSEPH, VICE PRESIDENT, DOMESTIC
POLICY

Mr. Thompson. Thank you, Mr. Chairman.

I would like to submit the entire statement for the record and I
will summarize the statement if that is agreeable with the Chair.

Mr. Brooks. Without objection, it is so ordered.

The gentleman is recognized.

Mr. Thompson. Mr. Chairman, Mr. Horton, my purpose today is
to express the chamber's opposition to OMB's proposed changes to
Circular A-122, "Cost Principles for Non-profit Organizations."

I asked to come here and testify today to emphasize by virtue of
the position that I hold as chairman of the U.S. Chamber of Com-
merce the importance that we attach to this issue and the signifi-
cance that we see in what is being proposed by this rule.

On January 24, 1983, the Office of Management and Budget pro-
posed changes to Circular A-122 that would disallow the cost of po-
litical advocacy in pricing procurement contracts and certain
grants. Similar changes were simultaneously proposed for the De-
fense acquisition regulation, Federal procurement regulation, and
National Aeronautics and Space Administration procurement regu-
lation.

OMB's proposals have set off a flurry of controversy in all sectors
of the country, and rightly so. These changes, if implemented,
would drastically alter the day to day routine operations of count-
less Federal contractors, nonprofit organizations, and trade associ-
ations. They would impose costly and unnecessary burdens on all
affected parties and would inhibit the free flow of information be-
tween these parties and all levels of government. In short, they are
unnecessary, unworkable, and very probably unconstitutional.

OMB's stated purpose in proposing these changes is to insure
that Federal dollars are not used, directly or indirectly, for political
advocacy. However, OMB offers absolutely no evidence that cur-
rent law, regulations and policy guidelines do not address these
concerns adequately.

The Federal procurement regulation currently disallows costs of
lobbying. The Internal Revenue Code denies deductions for lobby-
ing expenses. OMB Circular A-122 adequately prevents misalloca-
tion of costs under a Government grant or contract, whether or not
these other costs involve political advocacy.

Yet OMB's proposals ignore existing safeguards entirely. In fact
they go far beyond these established principles into entirely new
universes of political activity.

256

Perhaps the most alarming element in OMB's proposals is a
sweeping definition of political advocacy that covers virtually any
contact with government except contacts relating specifically to a
Federal grant or contract.

This includes activities designed to influence any governmental
decision, on administrative as well as legislative matters, by com-
munication with any member or employee of a legislative body or
with any government official or employee who may participate in
the decisionmaking process.

The new regulations would encompass activities at all levels of
government, Federal, State, and local, and with all branches, legis-
lative, executive and judicial.

What is more, dues to trade associations or other organizations
that acknowledge that they engage in political advocacy activities,
however minor in scope, would be disallowed by the OMB propos-
als.

For most groups it would be difficult, at best, to separate normal
activities from OMB's version of political advocacy. Accordingly,
nongovernment funds and organization uses for political advocacy
would be jeopardized since government contact at any level would
run the risk of being labeled advocacy by OMB.

In fact, OMB's definition of political advocacy encompasses the
most important contacts between the private and public sectors,
the routine exchange of information essential to keeping govern-
ment in touch with those it must govern, thus rendering both sides
less effective.

Furthermore, these restrictions would not be limited to that por-
tion of activities related to political advocacy but would extend to
those activities in their entirety.

Currently restrictions on lobbying activities by Federal contrac-
tors generally apply only to that portion of the contractors' activi-
ties allocable to lobbying.

Employees, equipment or facilities that are used for contract ac-
tivities can also be used for lobbying purposes, provided that the
cost of such lobbying is paid from non-Federal funds. OMB's pro-
posals would drastically inhibit this practice.

The proposals require physical separation of personnel and
equipment used in program activities and advocacy activities, a
process that would be burdensome and impractical.

OMB's proposal that businesses and organizations segregate and
consolidate these activities into a single office is totally unrealistic.
For small businesses, which is the bulk of the U.S. Chamber of
Commerce, I might add, it would be impossible; for large compa-
nies, impractical; for government, counterproductive. The result
would be a more remote and less informed bureauracy on all
levels. For small businesses the awesome possibility of debarment
is also included in this proposal.

The proposed regulations discriminatorily segregate and penalize
a particular segment of free speech, political advocacy. They explic-
itly permit certain types of expression, such as nonpartisan studies
and some types of litigation, and even permit some forms of politi-
cal advocacy.

The proposals discriminate in favor of unions by granting a spe-
cial exemption for union dues. Required membership in any other

257

political advocacy organizations would invoke total disallowance of
the salaries involved but membership in unions does not invoke
this disallowance.

Small businesses that receive Federal research and development
funds would also be discriminated against under the OMB propos-
als. Universities, strong competitors for the limited Federal re-
search funds available, are exempted from the proposals, while
small businesses would be compelled to comply.

The regulations are also impermissibly vague. They do not define
what constitutes attempting to influence an election or a govern-
mental decision. The regulations do not explain how to recognize a
Government employee who may participate in the decisionmaking
process. The regulations do not define the sorts of nonpartisan
studies of which they approve nor what constitutes technical advice
or assistance that is exempt from penalty when solicited in writing.

Further, they do not define the sorts of ministerial or nonmate-
rial political activities that need not be penalized.

The proposals would infringe on the guarantees of the first
amendment by precluding allocation of expenses, which would pe-
nalize exercise of freedom of expression and petition; discriminat-
ing, by exempting labor union dues and by restricting one category
of free speech, activities defined as political advocacy, while allow-
ing others; and imposing broad, vague, and unjustified require-
ments on certain sectors of society.

By denying reimbursement for costs of nonpolitical activities if
those costs are attributable to employees, equipment or facilities
also utilized in lobbying activities or political advocacy, as broadly
defined, the Government proposes to levy an unconstitutional con-
dition on contractors' rights to receive funds to which they are en-
titled by law.

Congress has long adopted programs calling for grants and con-
tracts and, absent specific prohibitions, grantees and contractors
have been allowed to engage in vigorous advocacy outside of their
Government time. The system has worked with very little abuse
and is constitutionally sound.

It is not OMB's responsibility to invoke broad and stringent re-
quirements to solve a problem not acknowledged by Congress or
the Supreme Court. Certainly it is not within OMB's authority to
directly contradict these bodies, as would the proposed revision's
requirements.

Under the current OMB Circular A- 122 if a grantee or Federal
contractor accepts Federal dollars and improperly allocates costs
related to nonproject activities, Federal agencies have ample au-
thority to withhold reimbursement.

The circular is based on sound accounting principles which, if fol-
lowed by the granting agency, insure that no Federal dollars im-
properly flow to private activities. It would be a stunning intrusion
into the speech and privacy rights of recipients to press further.

Finally, if OMB's proposed changes take effect, much more than
the constitutional rights of the contractors and grantees is at stake.
A democracy is richer if it can allow and even encourage citizens to
join together to promote their interests.

OMB's proposed changes, however, seek to inhibit these activi-
ties. If they are implemented, all of us will be the poorer.

258

Thank you very much for allowing us to make our statement to
this committee.

[Mr. Thompson's prepared statement follows:]

259

STATEMENT

before the

LEGISLATION AND NATIONAL SECURITY SUBCOMMITTEE

of the

GOVERNMENT OPERATIONS COMMITTEE

for the

CHAMBER OF COMMERCE OF THE UNITED STATES

Robert T. Thompson

I am Robert T. Thompson, senior partner, Thompson, Mann and Hutson, and
Chairman of the Board of the U.S. Chamber of Commerce. I am accompanied by
Jeffrey H. Joseph, vice president, Domestic Policy, and Christine A. Russell,
legislative counsel, Center for Small Business. My purpose today is to
express the Chamber's opposition to OMB's proposed changes to Circular A-122,
"Cost Principles for Nonprofit Organizations."

The Chamber of Commerce of the United States is the largest federation
of business and professional organizations in the world, and is the principal
spokesman for the American business community. The U.S. Chamber represents
more than 237,000 members, of which more than 233,000 are business firms, more
than 2,700 are state and local chambers of commerce and more than 1,200 are
trade and professional associations.

More than 90 percent of the Chamber's members are small business firms
having fewer than 100 employees. Yet, virtually all of the nation's largest
industrial and business concerns are also active members. We are particularly
cognizant of the problems of smaller businesses, as well as issues facing the
business community at large.

On January 24, 1983, the Office of Management and Budget proposed
changes to Circular A-122 that would disallow the cost of "political advocacy"
in pricing procurement contracts and certain grants. Similar changes were
simultaneously proposed for the Defense Acquisition Regulation, Federal
Procurement Regulation, and National Aeronautics and Space Administration
Procurement Regulation.

OMB's proposals have set off a flurry of controversy in all sectors of
the country — and rightly so. These changes, if implemented, would
drastically alter the day-to-day, routine operations of countless federal
contractors, nonprofit organizations, and trade associations. They would
Impose costly and unnecessary burdens on all affected parties, and would
inhibit the free flow of information between these parties and all levels of
government. In short, they are unnecessary, unworkable and very probably
unconstitutional.

A-122 CHANGES ARE NOT NEEDED

OMB's stated purpose In proposing these changes is "to ensure that
federal dollars are not used, directly or Indirectly, for political
advocacy." According to the agency, these changes are needed to ensure that:

1) Government does not appear to endorse the political views of the
organizations it funds;

2) Government does not induce recipients of federal funds to conform
their behavior to government desires; and

260

3) Taxpayers are not required to contribute to the support of an
ideological cause they may oppose.

However, 0MB offers absolutely no evidence that current law,
regulations and policy guidelines do not address these concerns adequately.

The Federal Procurement Regulation currently disallows costs of
lobbying. The Internal Revenue Code denies deductions for "lobbying"
expenses. And 0MB Circular A-122 adequately prevents misallocation of costs
under a government grant or contract, whether or not these other costs involve
political advocacy.

Yet, OMB's proposals ignore existing safeguards entirely. In fact,
they go far beyond these established principles into entirely new universes of
political activity.

POLITICAL ADVOCACY DEFINITION UNREASONABLY BROAD

Perhaps the most alarming element in OMB's proposals is a sweeping

definition of political advocacy that covers virtually any contact with
government except contacts relating specifically to a federal grant or
contract. This includes activities designed to influence any governmental
decision, on administrative as well as legislative matters, by communication
with any member or employee of a legislative body, or with any government
official or employee who may participate in the decisionmaking process.

The new regulations would encompass activities at all levels of
government — federal, state and local — and with all branches —
legislative, executive and judicial — and public discussions (other than
membership in a labor union) .

What's more, dues to trade associations or other organizations that
acknowledge that they engage in political advocacy activities, however minor
in scope, would be disallowed by the 0MB proposals.

The proposed changes have serious, and potentially devastating,
implications for corporations which sponsor separate segregated funds, that
is, political action committees (PACs). This runs contrary to the intent of
the Federal Election Campaign Act of 1971 (FECA), written with the deliberate
object of creating legitimate avenues of interest group participation in the
electoral process.

In the 1974 Amendments to FECA, Congress reinforced its intent by
specifically permitting government contractors to sponsor PACs. OMB's
proposals contravene this clearly stated congressional intent by placing
unwarranted administrative burdens on government contractors with PACs.

THE PROPOSALS ARE UNWORKABLE

For most groups, it would be difficult, at best, to separate normal
activities from OMB's vision of "political advocacy." Accordingly,
non-government funds an organization uses for political advocacy would be
jeopardized, since government contact at any level would run the risk of being
labeled "advocacy" by 0MB.

In fact, OMB's definition of "political advocacy" encompasses the most
important contacts between the private and public sectors — the routine
exchange of information essential to keeping government in touch with those it
must govern — thus rendering both sides less effective.

261

Furthermore, these restrictions would not be limited to that portion of
activities related to "political advocacy," but would extend to those
activities in their entirety. Currently, restrictions on lobbying
by federal contractors generally apply only to that portion of the
contractors' activities allocable to lobbying. Employees, equipment or
facilities that are used for contract activities can also be used for lobbying
purposes, provided that the cost of such lobbying is paid from nonfederal
funds. OMB's proposals would drastically inhibit this practice.

For example, if an individual were to write to a local government
official on behalf of a company under federal contract, the entire cost of his
or her salary could be disallowed under the proposal, as could the costs of a
photocopy machine used to reproduce the letter, and the postage machine that
stamped the letter. Even though the so-called "political" activity took up a
small percentage of employee and equipment time, the entire costs could be
disallowed.

The proposals require physical separation of personnel and equipment
used in program activities and advocacy activities — a process that would be
burdensome and impractical. They would force most major defense contractors
and many nonprofits to move their government relations units into separate
offices, with separate office equipment and separate clerical staffs.

For many, this division would prove logistically and economically
infeasible. Unable to comply with the requirement , companies and
organizations would be faced with the choice of rejecting federal funds and
contracts or abstaining from any of the broad range of activities covered by
OMB's definition of political advocacy. The effect would be to chill the
perfectly legal dialogues and communications that are essential to sound
governmental processes.

The business community and all levels of government — federal, state
and local — currently communicate on a continuing basis about a vast array of
concerns. Government is better for these interchanges. In fact, in a
democratic society, they are essential.

OMB's proposal that businesses and organizations segregate and
consolidate these activities into a single office is unrealistic. For small
businesses, it would be impossible; for large companies, impractical; for
government, counterproductive. The result would be a more remote and less
informed bureaucracy on all levels.

OMB'S PROPOSALS ARE DISCRIMINATORY AND VAGUE

The proposed regulations discriminatorily segregate and penalize a
particular segment of free speech — "political advocacy." They explicitly
permit certain types of expression, such as "nonpartisan" studies and some
types of litigation, and even permit some forms of "political advocacy."

262

The proposals discriminate in favor of unions by granting a special
exemption for union dues. Required membership in any other "political
advocacy" organizations would invoke total disallowance of the salaries
involved, but membership in unions does not invoke this disallowance.
Further, the regulations would permit provision of "advice or assistance" to a
governmental body in some circumstances, but not in others. It sometimes
would be permissible to attempt to influence public opinion as long as the
person doing so is not ultimately "attempting to influence government
decisions."

Small businesses that receive federal research and development funds
would also be discriminated against under the OMB proposals. Universities,
strong competitors fcr the limited federal research funds available, are
exempted from the proposals, while small businesses would be compelled to
comply.

The regulations are also impermissibly vague. They do not define what
constitutes "attempting to influence" an election or a governmental decision.
They prohibit any attempt to influence the government by affecting public
opinion but do not inform us of the circumstances in which an "attempt to
affect" public opinion will be regarded as "attempting to influence" the
government. The regulations do not explain how to recognize a government
employee who "may participate in the decisionmaking process" or when
communication with such an entity will constitute "attempting to influence."
The regulations do not define the sorts of "nonpartisan" studies of which they
approve, nor what constitutes "technical" advise or assistance that is exempt
from penalty when solicited in writing. Further, they do not define the sorts
of "ministerial" or "non-material" political activities that need not be
penalized.

THE PROPOSED REGULATIONS ARE UNCONSTITUTIONAL

The proposals, which would have a chilling effect on freedom of
expression and petition, would infringe on the guarantees of the First
Amendment by:

o Precluding allocation of expenses, which would penalize exercise of
freedom of expression and petition;

o Discriminating, by exempting labor union dues and by
restricting one category of free speech — activities
defined as political advocacy — while allowing others; and

o Imposing broad, vague and unjustified requirements on certain
sectors of society.

By denying reimbursement for costs of nonpolitical activities if those
costs are attributable to employees, equipment or facilities also utilized in
lobbying activities or political advocacy, as broadly defined, the government
proposes to levy an unconstitutional condition on contractors' rights to
receive funds to which they are entitled by law.

The Supreme Court has consistently held that the government may not
deny a person a valuable government benefit "on a basis that infringes his
constitutionally protected interests — especially his interest in freedom of
speech." ( Branti v. Finkel , 445 U.S. 507, 515 (1980) quoting Perry v.
Sindermann, 408 U.S. 593, 597 (1972)).

263

Certainly, a broad restriction that denies contractor reimbursement for
the costs of nonpolitical activities unless the contractor segregates
facilities, equipment and personnel devoted to political activities not only
serves no legitimate governmental interest or purpose, but raises fundamental
constitutional issues as well.

Constitutional experts have extensively documented the questions raised
by OMB 's proposals. We would be happy to provide the Committee with this
documentation if it so desires.

CONCLUSION

In a free society, government should rely primarily on its citizens to
declare when free speech i6 threatened and needs remedial help.

Congress has long adopted programs calling for grants and contracts,
and, absent specific prohibitions, grantees and contractors have been allowed
to engage in vigorous advocacy outside of their government time. The system
has worked with very little abuse and is constitutionally sound. It is not
OMB's responsibility to invoke broad and stringent requirements to solve a
problem not acknowledged by Congress or the Supreme Court. Certainly, it is
not within OMB's authority to directly contradict these bodies, as would the
proposed revisions' requirements.

Under the current OMB Circular A-122, if a grantee or federal
contractor accepts federal dollars and improperly allocates costs related to
non-project activities, federal agencies have ample authority to withhold
reimbursement. The circular is based on sound accounting principles which, if
followed by the granting agency, ensure that no federal dollars improperly
flow to private activities. It would be a stunning intrusion into the speech
and privacy rights of recipients to press further.

Finally, if OMB's proposed changes take effect, much more than the
constitutional rights of the contractors and grantees is at stake. Lost
opportunities will be the greatest casualty. A democracy Is richer if it can
allow and even encourage citizens to join together to promote their common
interests. As long as the legal limits on lobbying are observed,
organizations ought to be able to use their privately raised dollars to engage
in other kinds of advocacy for themselves and their clients. If that advocacy
brings criticism of a local school board or the United States Senate, no one
is the poorer. In fact, through its exercise of freedom of expression, the
entire country is enriched.

OMB's proposed changes, however, seek to inhibit these activities. If
they are implemented, all of us will be the poorer.

264

Mr. Brooks. Thank you very much for a fine statement.

I have one question. The OMB circular would prohibit contrac-
tors or grantees from contributing money, including dues, to any
organization that had political advocacy as a substantial organiza-
tional purpose, or that spent $100,000 or more on political advoca-
cy. Would this provision disqualify some of your members from be-
longing to your association?

Mr. Thompson. I think possibly it would. I am not prepared to
say that it would totally disqualify them from belonging. I think it
would certainly diminish their ability to participate in our organi-
zation. In some instances it possibly would disqualify companies.

To be perfectly candid with you, I think I would have to say
surely there would be ways you could segregate activities, funds,
and dues so you could continue to operate. But it would definitely
hamper an organization such as ours and conceivably, let's say
through the cautious advice of legal counsel, there would be many,
many Government contractors who would see fit not to belong to
trade associations such as the U.S. Chamber of Commerce.

Mr. Brooks. There are more than nine ways, you think, to skin a
cat.

Mr. Thompson. Yes, sir.

Mr. Brooks. More than nine.

Mr. Thompson. I would say this would appear to be No. 10.

Mr. Brooks. No. 10, a new way.

Mr. Thompson. Yes, sir.

Mr. Brooks. I believe you can do it. I believe you can do it.

Mr. Thompson. I am not willing to say we would go out of busi-
ness. I think some organizations might, but we would find a way to
survive, I would hope.

Mr. Brooks. You have flexibility.

Mr. Thompson. It would be for

Mr. Brooks. It would be more difficult for small organizations.

Mr. Thompson. I think small organizations would be put in jeop-
ardy of their existence.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you very much, Mr. Chairman.

First of all I want to thank you for coming, Mr. Thompson. I re-
alize that as the chairman of the board of the chamber of com-
merce, your time is very valuable, and it is difficult for you to allo-
cate that type of time.

This hearing has gone on for a long time. We do appreciate your
patience.

I also want to tell you that we are happy that you did choose to
be here personally, accompanied by two of your people from the
chamber, because it does, I think, add importance and credibility to
the position of the chamber. I would assume from what you have
said you feel this OMB proposal is a very major intrusion into the
affairs of the chamber of commerce and the people that you repre-
sent.

Mr. Thompson. Yes, sir. I would like to point out that the cham-
ber, U.S. Chamber of Commerce, is a federation of trade associ-
ations and local chambers of commerce, and we represent them
here today.

265

We would see it not only as an intrusion into our affairs directly
but into the affairs of our many thousands of constituent members.
That is the reason I am here, because we wanted to stress to you
how important we consider this whole thing.

Mr. Horton. One of my constituents, a close personal friend of
mine, some years ago occupied the position that you occupy now.
Mr. Shumway. You may know him.

Mr. Thompson. Very well. He is a very fine and distinguished
gentleman.

Mr. Chairman and Mr. Horton, we have our annual dinner on
May 1 this year and I want to personally extend an invitation to
both of you to attend that dinner.

Mr. Horton. Make a note of that, because I am going to be
there.

Mr. Brooks. Put that in the record. All right.

Mr. Thompson. We would be delighted to have both of you.

Mr. Horton. I attended the one last year. They are always fine
events.

I gather from what you have said you feel this is a very danger-
ous endeavor by the Office of Management and Budget.

I don't know whether you were here this morning when Mr.
Wright of the Office of Management and Budget was talking about
going back to the drawing boards and in 2 weeks coming out with
something else. I was very impressed with your testimony because
you indicated that you don't feel that anything further is needed.
In other words, your testimony seems to indicate that the chamber
feels that there are adequate safeguards now against the use of
Government funds for lobbying.

Mr. Thompson. Yes. Absolutely.

Mr. Horton. I assume that if OMB does come out with other pro-
posals, the chamber will look them over very carefully, and I would
hope that we could have the benefit of your views with regard to
what they do propose.

I am a little bit concerned because I think that they have not
talked with the people that they need to talk with, and they are
scheduled to come out with something new in 2 weeks. I don't
think 2 weeks is enough time to walk through the complex consti-
tutional and other legal issues that they are going to have to go
through in order to come out with some type of regulation.

Mr. Thompson. You can be certain we will scrutinize anything
that does come out on this subject at any time. I will be surprised
if they come back with anything, period. But I will certainly be
surprised more if they come back in 2 weeks. We will certainly be
here if there is the need for further hearings.

Mr. Horton. Thank you very much. We appreciate your testimo-
ny •

Mr. Thompson. Thank you all.

Mr. Brooks. Thank you all.

Our next witness this afternoon is Mr. John M. Toups, president
and chief executive officer of Planning Research Corp. He is ap-
pearing today on behalf of the Professional Services Council.

Mr. Toups was named president of PRC in November of 1977 and
chief executive officer the following January. He was the founder
of the Toups Corp., a civil engineering firm that was acquired by

266

PRC in 1970. He holds a degree in civil engineering from the Uni-
versity of California at Berkeley and is a member of a number of
professional engineering associations. Mr. Toups is accompanied by
Bert Concklin, PRC's director of government relations.

Gentlemen, we are delighted to have you here. We would accept
your statement for the record and you may make whatever com-
ment you might want.

STATEMENT OF JOHN M. TOUPS, PRESIDENT AND CHIEF EXECU-
TIVE OFFICER, PLANNING RESEARCH CORP., ON BEHALF OF
PROFESSIONAL SERVICES COUNCIL, ACCOMPANIED BY BERT
CONCKLIN, DIRECTOR, GOVERNMENT RELATIONS, PLANNING
RESEARCH CORP.

Mr. Toups. First we want to thank the committee for the oppor-
tunity to present the views of the Professional Services Council
here today. It is a trade association of firms that provide technical
and professional services to both Government and the private
sector. The primary purpose of the council is to promote the policy
of Government reliance on the private sector for needed goods and
services. In other words, the council seeks avoidance of Govern-
ment competition with the private sector where the private sector
is capable of providing what the Government needs.

I came here as a concerned member of this council to present its
strong opposition to this OMB proposal. After hearing all of the
testimony today I am not just concerned about it; I, too, am out-
raged. I really am.

Only now do I realize the full negative impact on the country
and on my company that this proposal could have, or could have
caused.

I realize that the proposal will not get implemented largely be-
cause of this committee's good work.

Mr. Brooks. You shouldn't be so confident, Mr. Toups, that they
are going to go back to the drafting board.

Mr. Toups. I heard all of that. We will be here.

Mr. Brooks. We will all be back again.

Mr. Toups. Absolutely.

Mr. Brooks. I don't think they want to deal with us anymore,
but they may have to.

Mr. Toups. I am outraged at the lack of thought that the OMB
gave to this proposal in the first place or, even worse, at what
might be OMB's hidden agenda.

Let me personalize my concern by talking about the impact of
the proposal, if adopted, on my company.

PRC is a professional services company with over 6,000 engi-
neers, scientists, and other professional and technical people. We
do about 330 million dollars' worth of business a year. About half
of that is for the government, largely the Federal Government al-
though we do some State and local government work, too. The
other half of our business is with the private sector.

To properly serve any client one must understand its needs and
its procedures and rules. In order to properly serve the Federal
Government we must have a lot of interaction at all levels of the
Government and with all of the branches.

267

We must deal with a wide variety of government regulations. We
must routinely engage Federal, local, and State governments in
both seeking and offering ideas on such matters as Federal pro-
curement, program technical standards, taxation, trade policy, pen-
sion policy, SEC functions, health and safety, and a myriad of
others.

We must also engage in the conventional buyer-seller relation-
ship. Private-sector sellers do not communicate with government
buyers only by choice. The multitude of government regulations
that impact our government business make it mandatory that we
understand, comply with and react to them effectively and quickly.
This requires communications.

To facilitate this needed communication with the government we
have a modest full-time government relations activity. It costs
about $300,000 a year, or about one-tenth of 1 percent of our total
costs or total revenues.

And not all of this $300,000 is for lobbying; a lot of it is other
communications and liaison which are allowable costs under the
present rules.

The proposed rules would probably make all of the $300,000 un-
allowable, only about $150,000 of that would be saved by the gov-
ernment because we only do about half of our work for the govern-
ment. The other half of the $300,000 in government relations ex-
penditures is charged to the private sector work we do.

So we are only talking about — in our case, anyway — a very
modest sum, I believe. Compare this $150,000 with the impact that
this regulation could have had on us.

For example, I serve at the request of the Secretary of the Treas-
ury as the volunteer chairman of the U.S. payroll savings plan in
the Washington metropolitan area. In that role last fall I contacted
some Members of Congress to seek their support for the adoption of
a variable interest rate for U.S. savings bonds, to make them more
attractive savings instruments.

Under the proposed rules, as I understand them, this activity
would have contaminated the rest of my cost — the rest of my
salary — and this would have been disallowed.

I can assure you that this is substantially more than $150,000 to
which I first referred.

Let me give you a second example. Suppose that 100 of our 6,200
employees during the course of the year had some contact with
State, local, or Federal Government on a political matter — some-
thing that would be interpreted under this rule as a political
matter. If those people worked on government contracts their sala-
ries would be disallowed.

The impact on us of those salaries being lost would represent
somewhere between 25 and 50 percent of our total annual profits.

Let me give you a third example, which I think is outrageous. I
don't think it was meant to be this way but a literal interpretation
of the proposal would get you to this conclusion.

Our staff works in both the private and the public sector. In the
private sector we are quite often hired as experts, advocates even,
for a certain point of view. For example, we do a lot of work for the
Federal Department of Transportation. Some of those engineers, on
occasion, work for a private sector client like, say, a homeowners'

20-644 O— 83 18

268

association in Fairfax County. An engineer may go down to the
board of supervisors and represent the association on a traffic
matter that is of concern to its members, to try to influence the
decision of the board of supervisors.

As I understand these regulations, that traffic engineer's time
spent working on DOT projects would be disallowed.

Now, if I am correct about the proposed regulations and if that
occurred, it would bankrupt our company, which means we
wouldn't do that. As a practical matter, in the long run it would
mean we would have to separate our company into two parts, one
part to work for the Federal Government and the other part to
work in the private sector.

We could not continue to serve both the public and private sec-
tors. That would be a very negative impact on this country.

There is an awful lot of technology transfer, a lot of other man-
agement concepts transferred back and forth. And to tell a private
company that it cannot work for the Federal Government and still
work in the private sector, which is what this really says — it would
have that practical impact — I think is outrageous.

I believe that expresses my views, Mr. Chairman. I would con-
clude by saying that I don't think this proposed rule is needed, it is
useless and it ought to just be abandoned. I respectfully ask that
this committee use its infuence to get the administration to drop
the proposed rule.

Thank you.

[Mr. Toups' prepared statement follows:]

269

Statement of John M. Toups
Before the
House Government Operations Committee

INTRODUCTION

Good afternoon, Mr. Chairman and Members of the Committee:

I want to thank you for the opportunity to present the views of the

Professional Services Council regarding the proposed new rules on the

cost allowability of lobbying activities. I am here today representing

the Professional Services Council. I am also the Board Chairman and

President of Planning Research Corporation (PRC).

First, a word about the Professional Services Council. We are a trade
association with membership deriving primarily from firms which provide
technical and professional services to the public and private sector.
The primary focus of the Professional Services Council is the promotion
of the policy of government reliance on the private sector for needed goods
and services — that is, avoidance of government competition with the private
sector.

The PSC membership includes small businesses with sales under $10M as well as
large, diversified professional services companies with sales levels in excess
of $100M. As such, the PSC represents neither a small business nor a big
business orientation but a blend of the interests of each as they pertain to
the pursuit of the policy goal of government reliance on the private sector for
commercial goods and services.

The firm which I head, PRC, has been in the professional and technical services
business for 29 years, serving both the public and private sectors — currently
business derives approximately 60 per cent government and 40 per cent private
sector sources. In our history and through the moment, we provide an extremely
broad range of technical and managerial services with hundreds
of individual projects in existence at any given time. We have supported and
served virtually all major and most minor agencies of government in functions
ranging from design support of the Space Shuttle, to the design and construction
management of U.S. Navy port facilities.

270

ISSUES

We are here today to convey our strongest opposition to a truly remarkable and

unfortunate instance of a regulatory response which is out of all proportion

to the apparent problem. The rules which the 0MB and the DOD have proposed relative

to "political advocacy" (a new euphemism for lobbying we believe?) are nothing

less than stunning in their damage potential and arbitrary characteristics. What

is at stake, ladies and gentlemen, is the survival of open and constructive

communication between the public and the private sector--the type of communication

which has often been instrumental in helping understand and solve our major social,

economic and national security problems.

The architects of the proposed policy no doubt are well intended in their purpose.
We believe they are seriously misdirected in two important respects:

(1) Political Advocacy . A definition of political advocacy is proposed
which goes far beyond any reasonable definition of what has been
traditionally defined as lobbying—by the IRS,

DOD, GSA and others.

(2) Implementing Rules . The specific terms of how the new rules
would be implemented are, charitably, extremely punitive in
their design and effect.

THE POLITICAL ADVOCACY DEFINITION PROBLEM

The proposed rules are ostensibly an effort to impose additional regulatory
controls on the reimbursement principles for lobbying expenses. We cannot
discern any need for additional controls applicable to contractors in light of
regulatory actions recently taken. I have in mind the most recent Defense
Acquisition Regulation (DAR 76-39, Para. 15-205.51) issued in October 1982 by
Secretary Weinberger, which imposes strong and specific limitations on lobbying
cost reimbursement. Similarly, the current GSA regulation (FPR, Amendment 226)
constrains cost reimbursement for lobbying.

Basically these instruments define lobbying as efforts to influence the content
and direction of legislative action--typically through efforts to gain approval
of weapon systems or social programs and influence budget levels. It is my strong
impression that most companies fully comply with these regulations and anticipate
that they will experience a certain degree of unallowable cost as the consequence
of lobbying activities.

271

In addition to the standing regulations, there is a very real enforcement
mechanism which most of us are well acquainted with. I refer to the Defense
Contract Audit Agency personnel who aggressively audit our financial activities
related to government contracts. I can assure you they are diligent in examining
the allowability of our costs as they relate to lobbying activities.

The proposed rule changes apparently are motivated by a perception that the
lobbying regulations are not adequate. In any case, the proposed rule makes an
astonishing leap from the accepted definition of lobbying to something newly
defined as "political advocacy." The proposed definition of political advocacy
includes most routine forms of communication by contractor and non-profit
organizations intended to have an impact on and add value to the quality of govern-
ment policy making, decisions and on-going operations. Quoting from the proposed
DAR, it defines as unallowable political advocacy

"attempting to influence governmental decisions through
communication with any member of employee of a legislative
body or with any government official or employee who may
participate in the decision making process."

The range of prohibited interactions would include such fundamental transactions
as petitioning the government for relief from a regulation (e.g., OSHA standards,
pension regulations, food inspection procedures), recommending substantive
improvements in program technical standards (flight safety, drug abuse, con-
struction, financial disclosure), advocating changes before local governments in
such areas as zoning, education, taxation and law enforcement.

A typical business sytem internal to a profit making company such as my own
is, for better and for worse, heavily regulated and must routinely engage the
government in a free flow of information and ideas across the regulatory inter-
faces in such areas as federal procurement, taxation, trade policy, pension
policy, SEC functions, health and safety and many others.

The all encompassing breadth of the proposed definition of political advocacy
would have a desolating effect on buyer-seller communication. It insults the
tradition of mutual trust and problem-solving which has characterized the major
and important joint public-private sector efforts of this country in national
defense, in economic development, in space, in education, in health and many other
areas of importance to our social and economic well-being as a nation.

272

IMPLEMENTING RULES ("Contamination Principle")

The fundamental flaws in the definition of what constitutes political advocacy
are sufficient grounds in themselves for discontinuing the OMB/DOD rule making.
To make matters much worse, the implementing rules are breathtaking in their
arbitrary and punitive characteristics. The centerpiece of the implementing
rules is the "contimination" principle which is, to say the least, innovative.
Simply stated, any utilization of people, equipment or facilities for political
advocacy contaminates the resource used.

This would mean that if I, in my corporate capacity, approached an agency executive
or member of Congress to discuss a potential improvement, in perhaps, investment
tax credits or government programs to stimualte technology, I would become con-
taminated; that is, ttie balance of my time which would be devoted to ongoing
corporate internal management could not be paid for (as it is today in part) by
funds flowing through government contracts.

The examples of this contamination notion are as numerous as they are ludicrous.
In the equipment and facilities area, the use of a piece of reproduction equipment
to produce one sheet of paper related to political advocacy would contaminate
that equipment for reimbursement in connection with legitimate contract work.
Under the proposed rules, the fact that I have sought to have an impact on your
thinking on this issue would throw me into a contaminated category. Even the type-
writer used to produce the paper from which I am reading could have no part of its
costs allocated to government contracts for an entire year.

I can only conclude that the auditors of the proposal attempted an utterly
tortured design to totally partition political advocacy activities from the
policy, managerial, administrative, and ongoing operations of the corporation
or nonprofit. This is an artifical separation in the extreme which would be
virtually impossible to administer and ultimately very expensive to the govern-
ment and society.

IMPLICATION FOR INDIVIDUAL ORGANIZATIONS

At this point I would like to give you some sense of the impact on individual

corporations of the proposed rules. I cannot speak about the specific

impact on the nonprofits but I believe they would be similar, except probably

more severe because of the smaller size and financial limitations of those

organizations.

273

Before proceeding to talk about direct financial impacts, I think it is important
to make the point that the full and extensive range of communications between
private sector sellers and government buyers are not elective in nature. They
are a business-survival imperative arising from the need to understand, comply
with, and react effectively and efficiently in the face of the multitude of govern-
ment regulations which impact our business system. The dynamic, complex, and
frequently inconsistent nature of federal regulatory systems does not allow us
the luxury of a benign posture towards how the government conceptualizes and
implements federal regulation. The costs of staying abreast of and anticipating
and dealing effectively with regulation are in fact an internal cost of doing
in our highly competitive system. That cost will and must be incurred and
will ultimately be reflected in the prices of goods and services. Therefore,
in the largest economic sense, we are not talking about saving money but rather
what constitutes a reasonable approach to defining and assuring proper cost
allocation related to lobbying.

With regard to specific financial impacts, the situation obviously will vary
significantly from company to company. In the case of Planning Research
Corporation, we have a relatively modest ongoing government relations activity,
as do most of our competitors. In fact, the expense for this function constitutes
less than l/10th of 1 per cent of our annual sales. This simple arithmetic
masks the deeper reality of how these proposed rules would impact operations
like ours. If I very conservatively assume that in a given operating year 100 of
our 6300 employees engaged (even for one hour) in some form of interaction with
the government (which would be included in the proposed definition of political
advocacy) a serious financial problem results. If these 100 individuals who
normally work on government contracts were "contaminated," they could not be
reimbursed for the work they perform in fulfillment of such contracts. This would
occur very simply by an inability to absorb the direct costs, overhead and general
and administrative expenses associated with these people, which in the case of 100
people, might amount to $6M. This $6M loss, in turn, would represent a bottom
line erosion of our annual profit to a degree which in the view of our stockholders
would make us a totally unsatisfactory company.

The obvious question is, given the hypothetical financial damage just described,
why not simply stop interacting with the government. As I have indicated, that
is simply not a practical option in a highly regulated economic system. As a
footnote, I believe that the relative impact on small businesses would be pro-
portionately worse, since they, like us, have an irreducible fixed cost of doing
business with the government.

274

SUMMARY

Mr. Chairman, and members of the Committee, the Professional Services Council
sincerely believes that the proposed rules are not worthy of continued develop-
ment and that the rule making proceedings should be cancelled. They are destructive,
arbitrary, and ultimately punitive. Their philosophic thrust and content is mis-
directed. I am reminded of current Secretary of State George Schultz 1 observation
in a collection of essays related to business and oublic policy (edited by
John T. Dunlop, Harvard University Press, 1980). Secretary Schultz observes that
there is a central tension in our system between economic efficiency and political
equity. He goes on (paraphrasing) to say that business is driven primarily by
economic efficiency considerations and that government policy and regulatory
action is driven by perceptions of political equity. He then underscores the
importance and difficulty of balancing these often competing positions.

The issue we are discussing today is an unfortunate instance of chronic imbalance
between on the one hand the business and nonprofit communities legitimate rights
of access and communication, and on the other hand the government's obligation
to regulate lobbying activities. I suggest to you that the proposal at hand
would totally stack the deck in favor of the government. The people, who
the government represents after all, would be the real losers.

Beyond the lack of merit of the proposal, I sincerely believe it is a regulatory
initiative which would be extremely expensive, virtually impossible to administer,
andwould invite non-compliance because of its complex and arbitrary nature. Ex-
Secretary of Labor John Dunlop addressed this latter point in an article (The
Limits of Legal Compulsion, 27 Labor Law Journal 72):

"It should be a first principle (of regulatory design)
that no set of men are smart enough to write words about
which others cannot find holes when the stakes are high."
As I have indicated earlier in my testimony, the stakes are high in this instance
because of the necessity to interact with government across multiple regulatory
interaces.

The proposed rules do not advance the goals of responsive government, economy,
and the best use of public and private sector resources to solve national problems.
They are characterized by a closed approach to governing, and an utterly non-
convincing body of evidence that a real problem exists.

I urge you to use your influence to prevail upon the Administration to cancel this
unfortunate rule making proceeding.

Thank you for the privilege of participating as a witness before your Committee.

275

Mr. Brooks. Thank you very much for a splendid statement. I
enjoyed reading your prepared statement and I enjoyed the one
that you just made. I think they both complement each other and
are helpful.

Do you foresee a danger that this OMB proposal could give gov-
ernmental agencies the power to pick and choose the views they
hear on pending governmental decisions by soliciting opinions only
from friendly organizations?

Mr. Toups. Absolutely. In fact, the example I gave on the savings
bond thing; frankly, I was asked to do that by a member of the
Treasury Department. Obviously the Treasury Department wanted
that bill passed. I did, too. I think it was a good bill. But it clearly
could be worked in that manner, that you would only be asked to
participate in things that they wanted you to, no doubt about it.

Mr. Brooks. Mr. Horton.

Mr. Horton. Thank you, Mr. Chairman.

Mr. Toups, I was very impressed with your testimony and the
sincerity of it. I sense that you came here excited to begin with,
and the longer you sat here and the more you listened, the more
excited you got.

Mr. Toups. I didn't come here excited. People that know me
know that I don't normally get excited. I did not. I came here con-
cerned. My staff had been telling me about this rule and I just
couldn't believe the intent of it. I came here thinking there would
be clarification. There wasn't.

I sat through the testimony this morning and I couldn't believe
what I heard.

Mr. Horton. That is what I said. My first reaction, when I read
about the proposal up in Wayne County one night, after someone
told me he couldn't talk with me any more because I am a Con-
gressman, was the same as yours. I read the proposal that night
and I was shocked.

I am glad we have had this hearing. I think your testimony is
very helpful. I am concerned and hope that the message can get
carried back to the Office of Management and Budget that this is
not the way to solve the problem that they have mentioned.

I would assume from what you have said and what other people
have said here that Federal funds dispensed through grants and
contracts are generally not being used for lobbying purposes or
anything unlawful. Are you saying that there may be abuses, but
those abuses can be corrected other ways?

Mr. Toups. Yes.

Mr. Horton. Kind of like throwing the baby out with the bath
water.

Mr. Toups. Yes. The GAO statement, I think, was very sound.
We have a good accounting staff. We have internal auditors, out-
side auditors, and resident full-time Federal Government auditors
in our building. We have an audit committee composed of outsid-
ers. We have a code of business practices. We are very explicit in
following the rules and regulations of this Government.

Mr. Horton. The narrow rules and regulations.

Mr. Toups. Absolutely, absolutely.

276

Mr. Horton. And they are pretty stringent to begin with. Do you
think the taxpayer is getting his dollar's worth under the present
system without having to have that regulation?

Mr. Toups. Yes. Absolutely. No question.

Mr. Brooks. You said you were concerned when you came in but
not excited. But your statement said that these rules should be can-
celed, "They are destructive, arbitrary and ultimately punitive.
Their philosophical thrust and content is misdirected."

You know, when he gets mad he really gets after them, doesn't
he?

Thank you very much for presenting your views.

Our next witness is Peter F. McCloskey. Mr. McCloskey is presi-
dent of the Electronic Industries Association, which represents the
full spectrum of U.S. manufacturers in the electronics industry.
Prior to joining EIA he was president of the Computer and Busi-
ness Equipment Manufacturers Association and served as president
and chairman of the board of a manufacturing company.

Mr. McCloskey received a B.A. degree from Holy Cross College
and a law degree from Fordham University School of Law.

Mr. McCloskey is currently serving on the Peace Corps Advisory
Council to which he was appointed by President Reagan.

STATEMENT OF PETER F. McCLOSKEY, PRESIDENT, ELECTRONIC
INDUSTRIES ASSOCIATION, ACCOMPANIED BY ROBERT C.
JOHNSON, CHAIRMAN, MULTIASSOCIATION TASK GROUP ON
CIRCULAR A-122

Mr. McCloskey. Thank you, Mr. Chairman. Accompanying me is
Bob Johnson, the chairman and EIA representative to a multiasso-
ciation task group which is developing a response to OMB Circular
A-122.

We are particularly pleased to offer our testimony. We have
heard a lot of the testimony that has gone on earlier today. I would
like to contribute to that testimony, and in particular, would com-
mend the remarks just delivered by Mr. Toups.

In addition, Mr. Chairman, the multiassociation position state-
ment which I referred to earlier is in preparation and will be fur-
nished to this committee by the end of the week for further infor-
mation.

I would like to summarize briefly our position. It is that the
OMB proposal places an unjust and unreasonable burden on Gov-
ernment contractors and it must be withdrawn.

The policy and regulatory changes contravene existing adminis-
tration policy and overreach and usurp congressional prerogatives
and intent with regard to restrictions on political advocacy.

In addition, the vast expansion of the definition of political advo-
cacy, coupled with the imposition of a contamination principle of
disallowance of legitimate costs of doing business, will have the
effect of restricting the flow of information which is vital to the
decisionmaking processes of congressional and executive branch of-
ficials alike.

This contamination principle or test of political involvement is
impractical in today's closely regulated business world. By attempt-
ing to impose a physical wall of separation between the activity of

277

political advocacy and the activity of performing a contract, they
would inequitably benefit the Government and penalize contractors
at the same time. This would occur because reimbursement would
be denied for 100 percent of the work of an employee, 99 percent of
whose time had been productively spent in support of a contract
and 1 percent in political advocacy activities.

I would like to also say a few words about the provisions of the
circular which impact associations. Trade associations provide a
number of valuable services to the Government and the public, in-
cluding the development of technical standards, performance of
market studies and the holding of educational symposia.

The prohibition disallowing membership in associations engaged
in any degree of political advocacy as a reimbursable cost would
limit the ability of these groups to conduct such programs through
the curtailment of industry participation.

In addition, it must be understood that if and when an associ-
ation does engage in political advocacy activities it is done on a
consensus basis, reflecting the views of either the whole member-
ship or a significant segment thereof. Such a consensus process
might mean that at times the views of a particular company could
be contrary or even neutral or disinterested toward the position of
the industry as a whole.

Therefore, the political advocacy activities of an association could
be of little or no direct benefit to an individual member company.

As a matter of fact, a company may join EIA and contribute
strictly to support technical, educational, or marketing programs.

It is for these reasons that I feel very, very strongly that the pro-
posed policy and implementing regulations are unjustifiably bur-
densome, inconsistent with congressional intent and will cause fi-
nancial and operational disruption which will far outweigh any
benefit to be derived from their implementation.

We appreciate the tenor of the comments made today and we
urge your support in seeing that these rules and regulations are
not imposed on industry.

[Mr. McCloskey's prepared statement follows:]

278

STATEMENT
OF
PETER F. McCLOSKEY
ELECTRONIC INDUSTRIES ASSOCIATION

MR. CHAIRMAN. AND MEMBERS OF THE SUBCOMMITTEE:
I AM PLEASED TO APPEAR BEFORE YOU TODAY TO PRESENT THE VIEWS
OF THE ELECTRONIC INDUSTRIES ASSOCIATION ON OMB'S PROPOSED
REVISION OF CIRCULAR A-122 AND THE ATTENDANT REGULATORY CHANGES .
REPRESENTATIVES OF EIA ARE CURRENT! Y WORKING IN COOPERATION
WITH OTHER ASSOCIATIONS TO PREPARE FORMAL. WRITTEN COMMENTS IN
RESPONSE TO THE OMB PROPOSALS; THESE COMMENTS WILL BE F INALIZED
WITHIN THE WEEK AND WILL BE PROVIDED FOR YOUR CONSIDERATION.
MY REMARKS THIS MORNING WILL ATTEMPT TO BRIEFLY SUMMARIZE SOME
OF INDUSTRY'S PARAMOUNT CONCERNS ABOUT THE IMPLEMENTATION OF
THESE REGULATIONS.

AFTER EXTENSIVE STUDY OF THE PROPOSED CHANGES. IT IS OUR
CONSIDERED OPINION THAT THE OMB PROPOSAL PLACES AN UNJUST AND
UNREASONABLE BURDEN ON GOVERNMENT CONTRACTORS. AND MUST BE
WITHDRAWN.

THE POLICY AND REGULATORY CHANGES CONTRAVENE EXISTING
ADMINISTRATION POLICY. AND OVERREACH AND USURP CONGRESSIONAL
PREROGATIVES AND INTENT WITH REGARD TO RESTRICTIONS ON POLITI-
CAL ADVOCACY." IN ADDITION. THE VAST EXPANSION OF THE DEFINI-
TION OF POLITICAL ADVOCACY. COUPLED WITH THE IMPOSITION OF A
"CONTAMINATION" PRINCIPLE OF DISALLOWANCE OF LEGITIMATE COSTS
OF DOING BUSINESS. WILL HAVE THE EFFECT OF RESTRICTING THE
FLOW OF INFORMATION WHICH IS VITAL TO THE DECISION-MAKING
PROCESS OF CONGRESSIONAL AND EXECUTIVE BRANCH OFFICIALS ALIKE.

IN ITS OWN PROPOSAL FOR A UNIFORM FEDERAL PROCUREMENT
SYSTEM RELEASED IN FEBRUARY 1982. THE OFFICE OF MANAGEMENT AND
BUDGET STATED ON PAGE 25:

"PRESENT COST PRINCIPLES WILL BE REVIEWED WITH THE OBJEC-
TIVE OF ALLOWING ALL NORMAL AND NECESSARY COSTS OF DOING BUSI-
NESS. THE COST PRINCIPLES WILL RECOGNIZE THAT THE DISALLOWANCE
OF NECESSARY COSTS ERODES CONTRACTOR PROFITS. THIS IN TURN
REDUCES COMPETITION. THE ONLY UNALLOWABLE COSTS SHOULD BE THOSE
WHICH ARE AGAINST PUBLIC POLICY."

279

are all activities embraced in the proposed definition
of political advocacy contrary to public policy? we would
contend that communications between government and industry
are essential to the proper conduct of business by both par-
ties, particularly in the highly complex and increasingly
technical sphere of government contracting. thus, the ans-
wer to this question must be a resounding, "no!"

The proposed regulations impose limitations on "lobby-
ing AND RELATED ACTIVITIES WHICH GO WELL BEYOND THOSE DIREC-
TED BY CONGRESS. THE DOD APPROPRIATION ACT FOR FY 1983 -
(PUBLIC LAWS 97-377 AND 97-796) HAS STATED THAT:

"NONE OF THE FUNDS MADE AVAILABLE BY THIS ACT
SHALL BE USED IN ANY WAY, DIRECTLY OR INDIRECTLY,
TO INFLUENCE CONGRESSIONAL ACTION ON ANY LEGISLA-
TION OR APPROPRIATION MATTERS PENDING BEFORE CONGRESS."

THIS IS THE ONLY SPECIFIC RESTRICTION ON THE USE OF
APPROPRIATED FUNDS TO HIRE ANYONE TO LOBBY THE CONGRESS, OR
TO PROMOTE THE GENERAL PUBLIC'S ENGAGING IN GRASS ROOTS LOB-
BYING. IT IS CLEARLY IN CONSONANCE WITH INTERNAL REVENUE
CODE RESTRICTIONS ON BUSINESS DEDUCTIONS FOR POLITICAL ADVO-
CACY ACTIVITIES. IN SECTION 162(E) OF THE REVENUE ACT OF
1962, CONGRESS RECOGNIZED THAT A BUSINESS MUST BE ABLE TO
MONITOR LEGISLATIVE DEVELOPMENTS AND REGISTER ITS VIEWS IN
ORDER TO FUNCTION EFFECTIVELY IN TODAY'S ECONOMY. THE ACT
CREATED A SPECIFIC DEDUCTION FOR POLITICAL ADVOCACY, THEREBY
ELIMINATING CONFUSION CAUSED BY EARLIER REGULATIONS WHICH
SOUGHT TO DISTINGUISH BETWEEN REGULAR BUSINESS EXPENSES AND
LEGISLATIVE ACTIVITIES.

FURTHER AND DEFINITIVE GUIDANCE ON LEGISLATIVE CON-
TROLS ON LOBBYING IS CONTAINED IN THE FEDERAL REGULATION OF
LOBBYING ACT, 2 U.S.C., SECTION 261 ET. SEQ, (1946). THAT
ACT DEFINED LOBBYING ACCORDING TO ITS CURRENT COMMONLY ACCEP-
TED MEANING, I.E., DIRECT COMMUNICATION WITH MEMBERS OF CON-
GRESS ON PENDING OR PROPOSED LEGISLATION,

THE CURRENT OMB PROPOSALS COMPLETELY OVERREACH THESE
CLEAR EXPRESSIONS OF CONGRESSIONAL INTENT. THEY EXTEND THE
DEFINITION OF POLITICAL ADVOCACY TO BAR PAYMENT FOR ANY CONTACT;
WITH RULE-MAKING OR POLICY MAKING PERSONNEL OF THE EXECUTIVE . .
BRANCH AND STATE AND LOCAL GOVERNMENT ENTITIES. THEY
WILL HAVE THE EFFECT OF USURPING CONGRESSIONAL PREROGATIVES

280

BY RESTRICTING THE FREE FLOW OF INFORMATION BETWEEN INDUSTRY
AND GOVERNMENT. AND THEY WILL PLUNGE CONTRACTORS INTO THE
ENVIRONMENT WHICH THEY FACED PRIOR TO THE 1962 REVENUE ACT,
REQUIRING THEM TO UNDERTAKE THE BURDENSOME TASK OF DETERMINING
WHAT CORPORATE RESOURCES CAN BE DEVOTED TO ANY FORM OF GOVERNMENT
RELATIONS WITHOUT RISKING COMPLETE DISALLOWANCE OF THE COST
OF THOSE RESOURCES UNDER FEDERAL CONTRACTS.

THIS REPUDIATION AND ALTERATION OF CONGRESSIONAL INTENT
SHOULD ALONE REPRESENT A COMPELLING ENOUGH REASON FOR THE
WITHDRAWAL OF THESE REGULATIONS. HOWEVER, THE PROPOSALS GO
MUCH FURTHER IN THEIR ONEROUS EFFECTS ON THE GOVERNMENT CON-
TRACTING ENVIRONMENT. THEY WOULD ESTABLISH A "CONTAMINATION"
(ALL OR NONE) TEST OF POLITICAL INVOLVEMENT WHICH IS IMPRAC-
TICAL IN TODAY'S CLOSELY REGULATED BUSINESS WORLD. BY ATTEMP-
TING TO IMPOSE A PHYSICAL WALL OF SEPARATION BETWEEN THE
ACTIVITIES OF POLITICAL ADVOCACY AND THE ACTIVITIES OF PER-
FORMING A CONTRACT, THEY WOULD INEQUITABLY BENEFIT THE GOVERN-
MENT AND PENALIZE CONTRACTORS AT THE SAME TIME.

THIS WOULD OCCUR BECAUSE REIMBURSEMENT WOULD BE DENIED
FOR 100 PERCENT OF THE WORK OF AN EMPLOYEE, 99 PERCENT OF
WHOSE TIME HAD BEEN PRODUCTIVELY SPENT IN SUPPORT OF A CON-
TRACT AND ONE PERCENT IN POLITICAL ADVOCACY ACTIVITIES.

THE CONTAMINATION PRINCIPLE WOULD RESULT IN DISALLOW-
ANCE OF COSTS FOR LEGITIMATE MARKETING ACTIVITIES AS WELL.
MARKETING EXPENSES INCLUDE COSTS FOR APPLYING OR MAKING A
PROPOSAL OR BID, OR PROVIDING INFORMATION IN CONNECTION WITH
SUCH AN AGREEMENT. -

TO RESTRICT SUCH ACTIVITIES THROUGH DISALLOWANCE WILL
HAVE THE EFFECT OF CONSTRAINING THE REGULAR EXCHANGE OF DATA
AND DIALOGUE WHICH CAN HELP DEVELOP SOLUTIONS TO FUTURE RE-
QUIREMENTS. MARKETING AS A TOTAL FUNCTION BEARS, AND SHOULD
BEAR, NO RELATION TO POLITICAL ADVOCACY.

THE DEFINITION OF POLITICAL ADVOCACY ALSO ENCOMPASSES
CONTACTS WITH STATE AND LOCAL GOVERNMENTS ON MATTERS OF DIRECT
CONCERN TO CONTRACT PERFORMANCE. EFFORTS BY LOCAL PLANT
MANAGERS OR EMPLOYEES TO COOPERATE WITH CITY COUNCILS OR OTHER
LOCAL BODIES ON MATTERS RELATING TO ZONING LAWS, UTILITY RATES,
RIGHTS-OF-WAY, ETC., WOULD CAUSE THESE EMPLOYEES' SALARIES TO
BE DISALLOWED FOR A YEAR. THIS WOULD INEVITABLY RESULT IN
CONSTRAINTS ON THE ACTIVITIES OF CONTRACTOR PERSONNEL IN DECI-
DING MATTERS DIRECTLY RELATED TO THE HEALTH AND SAFETY OF
THEIR EMPLOYEES.

281

ALL OF THESE UNREASONABLE, PUNITIVE AND BURDENSOME
EFFECTS WILL FALL MOST HEAVILY ON SMALLER BUSINESSES, SINCE
THESE ARE MOST VULNERABLE TO ABSORBING COSTS OF DOING BUSI-
NESS WITH THE GOVERNMENT. IT IS NO EXAGGERATION TO SUGGEST
THAT MANY WILL SIMPLY LEAVE THE GOVERNMENT MARKETPLACE RATHER
THAN SUBMIT TO THE ADDED EXPENSE OF PHYSICAL SEPARATION OF
POLITICAL ADVOCACY RESOURCES AND THE IMPOSITION OF NEW AND
COMPLEX ACCOUNTING SYSTEM REQUIREMENTS.

THE EFFECT WILL BE TO FURTHER ERODE COMPETITION FOR
GOVERNMENT CONTRACTS, AGAIN A VIOLATION OF THE STATED CONCERNS
OF MEMBERS OF CONGRESS AND THE EXECUTIVE BRANCH.

AMONG THE MOST FUNDAMENTAL AND CHILLING EFFECTS OF ALL,
HOWEVER, WILL BE THE UNJUSTIFIABLE RESTRICTION ON THE EXER-
CISE OF CONSTITUTIONALLY GUARANTEED RIGHTS. SMALLER BUSI-
NESSES MAY IN SOME INSTANCES SURRENDER THEIR FIRST AMENDMENT
RIGHTS IN ORDER TO CONTINUE TO RECEIVE GOVERNMENT CONTRACTS.

THE OMB PROPOSAL WILL INHIBIT ADVOCACY BY BUSINESS AND
TRADE GROUPS IN GENERAL TO THE ADVANTAGE OF THOSE INTERESTS,
BOTH FOREIGN AND DOMESTIC, WHICH OPPOSE THEM IN THE POLITICAL
ARENA.

HAVING THUS ADDRESSED A NUMBER OF CONCERNS COMMON TO A
LARGE SEGMENT OF OUR INDUSTRY, I WOULD NOW LIKE TO TOUGH BRIEF-
LY ON THE SPECIFIC EFFECTS WHICH THESE PROPOSALS WILL HAVE ON
TRADE ASSOCIATIONS WHOSE MEMBERSHIPS CONSIST IN SIGNIFICANT
MEASURE OF FIRMS INVOLVED IN GOVERNMENT CONTRACTING. TRADE
ASSOCIATIONS PROVIDE A NUMBER OF VALUABLE SERVICES TO THE GOVERN-
MENT AND THE PUBLIC - INCLUDING THE DEVELOPMENT OF TECHNICAL
STANDARDS, PERFORMANCE OF MARKET STUDIES, AND THE HOLDING OF
EDUCATIONAL SYMPOSIA. THE PROHIBITION DISALLOWING MEMBERSHIP
DUES IN ASSOCIATIONS ENGAGING IN ANY DEGREE OF POLITICAL ADVO-
CACY AS A REIMBURSABLE COST WOULD LIMIT THE ABILITY OF THESE
GROUPS TO CONDUCT SUCH PROGRAMS THROUGH THE CURTAILMENT OF
INDUSTRY PARTICIPATION.

IN ADDITION, IT MUST BE UNDERSTOOD THAT IF, AND WHEN,
AN ASSOCIATION DOES ENGAGE IN POLITICAL ADVOCACY ACTIVITIES,
IT IS DONE ON A CONSENSUS BASIS REFLECTING THE VIEWS OF EITHER
THE WHOLE MEMBERSHIP OR A SEGMENT THEREOF. SUCH A CONSENSUS
PROCESS MIGHT MEAN THAT, AT TIMES, THE VIEWS OF A PARTICULAR
COMPANY COULD BE CONTRARY OR EVEN NEUTRAL OR DISINTERESTED
TOWARD THE POSITION OF INDUSTRY AS A WHOLE.

282

THEREFORE, THE POLITICAL ADVOCACY ACTIVITIES OF ASSOCI-
ATIONS COULD BE OF LITTLE OR NO DIRECT BENEFIT TO AN INDIVIDUAL
MEMBER COMPANY. AS A MATTER OF FACT, A COMPANY MAY JOIN AN
ASSOCIATION AND PAY DUES STRICTLY TO SUPPORT TECHNICAL, EDUCA-
TIONAL OR MARKETING PROGRAMS.

IN ADDITION, THE BURDEN PLACED ON AN INDIVIDUAL GOVERN-
MENT CONTRACTOR TO MONITOR AND ASCERTAIN THE PRESENCE AND
DEGREE OF POLITICAL ADVOCACY PROGRAMS WOULD BE AN UNREASONABLE
BURDEN IN THAT THE ASSOCIATION ACTIVITIES MAY BE CARRIED OUT
IN AREAS FAR REMOVED FROM THE INTEREST OR PARTICIPATING AREAS
OF A MEMBER.

DUES TO AN ASSOCIATION ARE PREPAID IN MOST INSTANCES,
AND AT THE TIME OF PAYMENT, AN INDIVIDUAL COMPANY WOULD HAVE

NO IDEA AS TO THE FUTURE POLITICAL ADVOCACY ACTIVITIES

AGAIN IMPOSING AN UNREASONABLE BURDEN ON GOVERNMENT CONTRACTORS.

FINALLY, CONGRESS LEGISLATIVELY HAS DETERMINED THAT TAX-
EXEMPT ORGANIZATIONS MAY USE "PUBLIC" OR TAX-EXEMPT FUNDS FOR
DIRECT LOBBYING PURPOSES. THE REGULATIONS BEING PROPOSED FOR
TRADE ASSOCIATIONS CONTRAVENE THAT LEGISLATIVE INTENT.

IN CLOSING, MR. CHAIRMAN, LET ME REITERATE THE POSITION
OF OUR ASSOCIATION THAT THE PROPOSED POLICY AND IMPLEMENTING
REGULATIONS ARE UNJUSTIFIABLY BURDENSOME, INCONSISTENT WITH
CONGRESSIONAL INTENT, AND WILL CAUSE FINANCIAL AND OPERATIONAL
DISRUPTION WHICH WILL FAR OUTWEIGH ANY BENEFIT TO BE DERIVED
FROM THEIR IMPLEMENTATION. WE URGE YOUR ATTENTION, AND THAT
OF OTHER CONCERNED MEMBERS OF CONGRESS, TOWARD SEEKING WITH-
DRAWAL OF THIS ILL-CONCEIVED PROPOSAL. TO THAT END, REPRESEN-
TATIVES OF THE ASSOCIATION WOULD BE PLEASED TO WORK WITH YOU
AND MEMBERS OF YOUR STAFF IN ANY WAY YOU FEEL APPROPRIATE.

I WOULD BE PLEASED TO RESPOND TO ANY QUESTIONS.

283

Mr. Brooks. Thank you very much for a good statement. It was
well thought out, constructive, and helpful.

Does your organization have purely informational contacts with
Government agencies that would be curtailed by the proposed OMB
regulation?

Mr. McCloskey. We certainly have a number of purely informa-
tional activities that would be impacted. Whether they will be cur-
tailed depends on the companies themselves, and on the number of
member companies which would decide to stay in and continue to
participate.

In our association we have broad representation by a number of
industry segments. In one group within the association we are con-
cerned with consumer electronics activity; in another, government
electronics; in another, telecommunications and related activities.

Right now there is a major issue on the consumer side concern-
ing whether or not it should be legal for programs to be taped off
the air.

The activities we are involved in with respect to that area of con-
cern might in some way affect the EI A government division, which
has no interest in that particular issue under the provisions of Cir-
cular A-122 as currently proposed.

So you would call into question whether the association's activi-
ties which are paid for out of the dues of the members that are in
one portion of the business would unduly affect those activities in-
volving another business completely. It would be an absurd result.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you very much. I don't have any questions.

Mr. Brooks. Thank you very much for coming down.

Next we will hear from Mr. Robert O. Bothwell, executive direc-
tor of the National Committee for Responsive Philanthropy. He has
also served as Deputy Director of the U.S. Office of Economic Op-
portunity, Community Action Research and Demonstration
Division, and has worked for NASA, the U.S. Conference of
Mayors, the National League of Cities, and the National Urban Co-
alition.

We welcome you here today. We will be pleased to enter your
statement in the record in its entirety.

Mr. Bothwell. Yes, sir, I would welcome that.

Mr. Brooks. And perhaps the foundation factsheet, which I think
has some good analyses in it, should also be put in the record.

STATEMENT OF ROBERT O. BOTHWELL, EXECUTIVE DIRECTOR,
NATIONAL COMMITTEE FOR RESPONSIVE PHILANTHROPY

Mr. Bothwell. Certainly, sir. Thank you for that. I would like to
offer a quick summary of my testimony.

My name is Robert Bothwell, executive director of the National
Committee for Responsive Philanthropy. The committee is a coali-
tion of minority, women's, consumer and other organizations con-
cerned with social justice. We work with our membership and with
hundreds of other such organizations to increase the very small
amount of philanthropic money that goes to newer, smaller, non-
profit organizations, especially those dealing with nontraditional or
unpopular causes.

20-644 O— 83 19

284

I am here today to express very strong opposition to the proposed
revisions to Circular A-122. You have already heard from many
that these revisions would have a devastating effect on many im-
portant nonprofit organizations. I would add particularly that the
small nonprofit organization would be most affected.

In addition you have also heard that this would curtail, have a
chilling effect on, the public debates in which these organizations
take part. We would agree with that. But so many have spoken to
that, I don't want to, nor could I add too much about their analy-
ses.

The prime additional reason to be here today is to point out that
the drastic changes that are proposed to Circular A-122 are not an
isolated phenomenon. In fact they are the genesis perhaps of a
Hydra-headed monster.

For example, the Circular A-122 revisions are remarkably simi-
lar to changes made just 2 weeks ago in the Federal Government's
on-the-job charity fundraising drive, the Combined Federal Cam-
paign.

This campaign, one of the largest in the country, raises $100 mil-
lion a year in charitable contributions from Federal employees.
From Federal employees, mind you, not from the Federal Govern-
ment. The Combined Federal Campaign has just been subjected to
the same devastation as the Circular A-122 changes and it would
indeed wreak some havoc on the charities that now participate in
it, as well as those that would like to but have not yet been able.

Let me give you the quote in this new Executive order that will
do such damage:

Any organization that seeks to influence * * * the determination of public policy
through * * * advocacy, lobbying or litigation on behalf of parties other than them-
selves will simply no longer be eligible to receive Federal employee contributions.

The main victims of this change are going to be organizations
that work actively with the needy, minorities, women, and to pre-
serve a healthy environment. But it is not going to stop there. You
heard the American Lung Association say how it, too, would be af-
fected by the Executive order. I want to give you another example.

I was up in Boston this weekend. There is in Boston an organiza-
tion by the strange name of BUG, which stands for Boston Urban
Gardners. This group develops community vegetable gardens for
low- and moderate-income neighborhoods as a helpful way of deal-
ing with food shortages and nutrition. It has had lots of Federal
dollars. Those dollars are now disappearing. The organization is
desperately trying to increase its private funds.

What it has done in the past year is join with 14 other various
community local service organizations to seek private funds availa-
ble through workplace charity drives.

BUG has a goal, to seek private contributions from State employ-
ees for their worthwhile efforts of developing community gardens
in low income neighborhoods. But in seeking to raise those private
funds from State employees they are going to have to advocate to
the Governor's office and indeed even lobby the legislature, since
currently only one or two organizations are allowed to solicit from
State employees.

285

What you can see is that the proposed revisions to Circular A-
122, would inhibit this excellent volunteer organization from advo-
cating or lobbying in Massachusetts to gain access to State employ-
ee contributions, because the organization is small with few staff,
none of whom could the organization afford to dedicate totally to
lobbying, and because the organization could not afford to set up a
separate office for its limited lobbying. But the new CFC Executive
order, another Hydra head of the Circular A-122 revisions, would
be even more disastrous for this organization as it would totally
prohibit the organization from lobbying to seek State employee
contributions if the organization wants to receive Federal contribu-
tions.

So the administration, which is publicly encouraging voluntarism
and private giving, has raised more regulatory barriers to this ex-
cellent voluntary organization trying to increase its private giving.
This is utter hypocrisy and it is devastating in its impact not only
for this little Boston organization but for thousands more like it
across the country.

To conclude, what I would urge the committee is not only to seek
complete withdrawal of the proposed revisions to Circular A-122
but also to eliminate the side effects of these insidious revisions by
taking whatever action is necessary to gut or to override the new
Executive order on the Combined Federal Campaign.

Thank you very much for this opportunity to testify.

[Mr. Bothwell's prepared statement follows:]

286

TESTIMONY

Robert O. Bothwell

Executive Director

National Committee for Responsive Philanthropy

to the

Subcommittee on Legislation and National Security

of the

Committee on Government Operations

March 1, 1983

My name is Robert Bothwell. I am executive director of the National
Committee for Responsive Philanthropy. The Committee is a coalition of
minority, women's, consumer and community organizations. We work to increase
the very small amount of philanthropic money that goes to these types of
organizations.

I am here today to express our strong opposition to the Office of Manage-
ment and Budget's proposed revisions to Circular A-122, revisions that we
think would have a devastating effect not only on many important private, non-
profit organizations, but also on the vital debate about public policy. We
are alarmed by OMB's proposals because they would control not only traditional
lobbying of legislators, but also nearly every other form of speech available
to a nonprofit organization, including the right to be heard in the courts,
the right to associate with other organizations, the right to criticize or
advise government officials, and the right to speak to citizens about important
public policy issues. We are also alarmed by OMB's proposals because they
would inordinately harm certain types of nonprofit organizations, specifically
those that are committed to helping minorities, women, the poor and other
people who lack power in our society.

I am also here today to point out that the drastic change in Circular A-122
is not an isolated phenomenon, as well as to explain the role and history of
charitable organizations, a role and history that the Reagan Administration
is apparently trying to deny.

The Administration's proposed changes in Circular A-122 are remarkably
similar to changes made two weeks ago in the government's on-the-job fund-raising
drive, the Combined Federal Campaign. The Campaign is one of the largest
sources of private support for charitable organizations, raising $100 million
a year in gifts from federal employees.

During the past three years, because of the prodding of Congress and the
courts, the list of organizations that federal employees can support has grown
considerably. In addition to United Way agencies such as the YMCA and health
groups such as the American Lung Association, federal employees can have gifts

287

deducted from their paychecks for groups concerned about civil rights, women's
rights and environmental protection. While giving to the Campaign went down
in the year prior to these changes, it has gone up in every year that employees
were given a broader range of charities to support.

However, in an executive order signed by President Reagan on February 10,
the Administration has decided to eliminate nearly all of these newly-admitted
charities. I think the Subcommittee will find the language of that executive
order very interesting. In addition to saying that charities can be eligible
only if they provide certain types of services to individuals, the executive
order says that any organization that "seeks to inf luence. . .the determination
of public policy through ... advocacy , lobbying, or litigation on behalf of
parties other than themselves" cannot participate in the Campaign.

The main victims of this change will be organizations that actively work
to help the needy, minorities and women, groups such as the NAACP Legal Defense
and Educational Fund, the NOW Legal Defense Fund, the Native American Rights
Fund, the National Black United Fund, the Martin Luther King Center for Non-
violent Social Change, Vietnam Veterans of America Foundation, the Children's
Defense Foundation and the Natural Resource Defense Council. However, the
executive order will also hurt mainline charities such as the American Lung
Association if they do things such as trying to influence government policy
on smoking, a fact that an Administration official confirmed to a New York
Times reporter (see attached article) .

Why are these extraordinary changes being made? The Administration argues
that the inclusion of agencies that try to influence government policy has
created controversy that will decrease giving. There has indeed been controversy
about a few of the newly admitted organizations. However, that controversy
has not hurt giving. In fact, during this past fall's campaign, overall giving
went up more than 7% according to the Office of Personnel Management, the first
time since 1977 that the increase in giving has exceeded inflation.

The real reason these changes are being made in the Combined Federal Campaign
is the same reason the changes in A-122 are being made: the Administration's
frightening desire to control the actions of private nonprofit organizations,
particularly those that are trying to help the people being hurt by many of
the Administration's policies.

It is extremely important to realize that the effects of the changes in
A-122 and in the Federal Campaign will not be neutral. They will have far more
impact on agencies that do not have as many other sources of private funding,
especially newer organizations, and agencies run by the poor, minor ites, women
and community residents. These types of organizations receive very little
money from private philanthropy, particularly foundations, corporations and
United Ways, a fact that has been documented by numerous studies done during
the past decade. We have attached a fact sheet that cites many of these
studies. I will note only a couple: in 1978, a Ford Foundation-supported study
found that groups trying to improve the status of women received only 0.6% of
the money given away by foundations. According to the Conference Board, "women's
causes" received but 0.3% of the money given away by corporations in 1980.
According to a Latino Institute study, organizations helping Hispanics received
but 1% of foundation grants made in 1977 and 1978. These studies are all
national-in-scope; the results of studies of philanthropic funding in particular
cities or states are even bleaker.

288

Because of this stark reality of philanthropic funding, it's clear that
the severe restrictions on advocacy contained in Circular A-122 and the new
executive order for the Federal Campaign will strike hardest on organizations
helping women, minorities and the poor. These organizations are struggling
simply to survive; they don't begin to have the private funds to set up
separate staffs and offices to do advocacy. Thus, what you have here is the
Administration that has been so intent on cutting off money to minorities,
women and the poor now trying to cut off their voices, as expressed through
the organizations that represent them.

I don't think there can be any doubt that part of the motivation for these
changes is to hurt many of the organizations that have been criticizing the
Administration's policies. It is ironic that the Administration defends
Circular A-122 by saying it wants to reduce the political impact of government
funding when the effects of A-122 will be profoundly political. It is also
ironic that this is the Administration that says it wants to reduce govern-
ment control over our lives when the effects of these two actions will be to
impose severe controls on the actions of private, nonprofit organizations.

But I don't think politics is the only motivation for these two actions.
They also reflect a profound misunderstanding of the history and role of non-
profit charitable organizations, as well as a terribly narrow view of the
proper relationship between these private organizations and government.

The executive order concerning the Combined Federal Campaign says that
any agency that trys to influence public policy through advocacy, lobbying
or litigation "shall not be deemed charitable health and welfare agencies...."
That is an extraordinary statement. Throughout history, private charitable
organizations have tried to influence public policy that affects the people
those organizations are trying to help. According to the Oxford English
Dictionary, an early definition of "charity" was "fairness, equity." The
Hebrew word that translates most closely to "charity" is "tsedaka," which
means "justice or righteousness," according to Carl Bakal, author of Charity
USA .

In the 19th century, Dorothea Dix spent much of her life advocating for
improved treatment of the mentally ill. During the Civil war, the Sanitary
Commission, a private group set up to give voluntary support to the army, did
not simply provide relief supplies but also prodded the government to see that
its resources were used effectively. Its oversight role was extremely important,
as have been the oversight roles of hundreds of other private charities. In
the lead essay for a blue-ribbon study of philanthropy done in the 1970s,
Robert Bremner says that a "marked tendency" of this country's charities has been
to "encourage, assist and even goad democratic government--and democratic citizens-
towards better performance of civic duties and closer attention to social require-
ments."

Congress, the Internal Revenue Service and the courts have all recognized
the legitimacy of this role for charities. Indeed, in 1976, Congress expanded
the amount of advocacy that charitable organizations could perform. Thus, these
actions by the Administration clearly contradict the will of Congress, to say
nothing of the way these actions defy the Constitution by trampling on a chari-
table organization's right to express its views.

289

These two actions by the Administration not only show an ignorance of the
role and history of charities, they also show a distorted view of the proper
relationship between charities and government. In a democracy, the government
must encourage the voices of people as expressed through the voluntary associa-
tions they form, not suppress those voices. In a democracy, those voices are
vitally important to make government work. As the government needed the Sanitary
Commission during the Civil War to improve its effectiveness, so government
today needs to hear about the effectiveness of its many programs from the organi-
zations that are trying to implement or oversee these programs. As a report to
the Canadian government by the National Advisory Council on Voluntary Action
put it, a democratic government should encourage the participation of private
charitable organizations in public policy debates "not because they represent
the public interest, but because it is in the public interest that they parti-
cipate." The Advisory Council believed that direct government support of
advocacy organizations was desirable because "it is the responsibility of
government to ensure that all possible voices are heard, including dissident
voices; and that, on every issue warranting public debate, as many options as
possible are presented, documented and considered. Such an approach is a basic
condition for an effective democratic process."

Interestingly, instead of worrying about the supposed evils of the govern-
ment supporting advocacy, the Advisory Council was worried about government
funding having precisely the opposite effect. The Council noted that, when a
voluntary organization takes government funding to provide some service, it
often moves away from an advocacy role into a service-providing role. Plus,
the organization's desire to keep receiving government funding often causes
it to "become excessively cautious about antagonizing granting agencies and
losing future grants." The report adds, "An association may gradually and
almost unconsciously accommodate itself to the f under over time. Such accommo-
dation can be seriously compromising, especially for social-action groups."

To summarize, the proposed changes in Circular A-122 would have a devastating
effect on private, nonprofit organizations, especially those set up to help
minorities, women and the poor. It would also stiffle the important dialogue
between private, nonprofit organizations and government, making these organiza-
tions little more than conduits for government funds. Congress should instruct
the Administration to immediately withdraw this proposed change in Circular A-122.

In addition, to be consistent, Congress should also instruct the White
House to withdraw the restrictive changes made in the executive order for the
Combined Federal Campaign, changes that would also impose severe restrictions
on the legitimate activities of charitable organizations. The Campaign should
be continued under the rules in effect last fall. Because these rules allowed
federal employees to support a broad range of charities, they led to the biggest
increase in giving since 1977. It's ironic that President Reagan, who has said
so often that he wants increases in private giving to help counter his budget
cuts, has agreed to a change that will discourage private giving by federal
employees.

I want to thank the subcommittee for allowing me to testify and for becoming
concerned about these vitally important issues affecting nonprofit organizations.

290

S!)c JCclu Jjork etmcjs

THURSDAY, FEBRUARY 17, 1983

Where
Charity
Begins

By MICHAEL deCOURCY HINDS

SfxcUl [o TV Nr» YortTUoca

WASHINGTON, Feb. 16 — If Presi-
dent Reagan has his way. Federal
workers will no longer be able to make
about $4 million in payroll pledges to
nonprofit groups advocating such
things as women's rights, civil rights
and environmental Issues.

To give more help to the "the poor,
the infirm, the hungry and the truly
needy," as a Administration official
put it, the President will no longer
allow Federal workers and service-
men to pledge payroll contributions to
charitable groups that advocate social
change. Direct donations are, of
course, unaffected.

In announcing Mr. Reagan's recent
executive order on the subject, Donald
J. Devine, director of the Office of
Personnel Management, said last
Thursday that the President was
trying to "avoid the reality and the ap-
pearance of the use of Federal re-
sources in aid of fund raising for polit-
ical and advocacy groups."

This decision could mean a loss of
several million dollars to about 36 so-
called legal defense funds.

Planning a Challenge
Groups likely to be cut from the offi-
cial roster include the Sierra Club
Legal Defense Fund, the NAACP
Legal Defense and Educational Fund,
Inc., Vietnam Veterans of America
Foundation and the Center for Science
in the Public Interest. A coalition of
these groups, which gained access to
the Federal paychecks only in the past
fes: years, met today to start planning
a le^al strr.tegy to remain in the an-
nual f_.i drive.

"It's utterly hyp>-ritical of Presi-
dent Rearjan to say he vants to in-
crease private giving and then cut
dozens of charities from the fund-rais-
ing campaign," said Timothy Saasta,

Legal defense funds
are organizing
to challenge the
executive order.

a spokesman for the National Com-
mittee for Responsive Philanthropy.

The new eligibility criteria are
likely to exclude only a few conserva-
tive groups. Prominent among these

is the National Right to Work Fuinda-
tion, which fueled the long-?immering
controversy by gaining admission to
the Federal Combined Campaign l*»t
July. Labor unions fiercely opposed
participation by this group, which pro-
vides free legal service to "victims of
compulsory unionism," according to
Joanna Boyce. a spokesman.

Drive by United Way
Such controversy does not sit well
with the mainstream charities, which
rely heavily on payroll contributions
made to the United Way of America.
United Way, which collected Jl 68 bil-
lion from all public and private
sources in 1981, organized a coalition
of 20 major charities last year to peti-
tion the President to consider new re-
strictions. His executive order closely
follows their requests.

Debate over admission to the Fed-
eral charity drive began In 1962, when
President Kennedy opened up the pro-
gram to "health and welfare charities
and others."

Mr. Reagan's order states that eligi-
bility "shall be limited to voluntary,
charitable, health and welfare agen-
cies that provide or support direct
health and welfare services to individ-
uals of their families." It adds,
"Agencies that seek to influence the
outcomes of elections or the determi-
nation of public policy through politi-
cal activity or advocacy, lobbbying, or
litigation on behalf of parties other
than themselves" shall not be eligible
to participate.

LI mltatloQ on Testifying
Much uncertainty exists because
the personnel office has yet to write
regulations putting the executive
order into effect. The restrictions on
lobbying, for example, are so stiff that
representatives of the American Lung
Association, which supported the
order, would no longer be able to tes-
tify at Congressional hearings in favor
of advertising regulations for ciga-
rettes. Joseph A. Morris, general
counsel of the Federal personnel of-
fice, the principal author of the execu-
tive order, said in an recent interview
that any group that lobbied for any
public policy would be ineligible for
participation.

The stakes are big. Last year, the
2.8 million Federal workers and 2.2
million members of the armed serv-
ices authorized the Government to de-
duct $100 million for donations to 111
individual charitable organizations
and 11 umbrella groups such as United
Way. Federal donations increased by
a near record of seven percent, but
pledges earmarked for United Way
decreased by more than W million.

"A lot of the money went to special
interest groups," said Steve Detfin, a
spokesman for United Way. "I'm not
saying that they don't have valid so-
cial roles, but they tend to drain
money away from the priority health
and welfare needs."

J|gl»*.».,:SrV***mJ#^*««W

291

Wednesday, February 23, 1983

Advocacy Groups Protest New Rules
Restricting the Federal Charity Drive

By Karlyn Barker

Washington Post Surf Writer

President Reagan's newly issued
restrictions on the government's an-
nual charity drive have drawn pro-
■ tests from civil rights, environmental
and women's rights groups, who say
they are being kicked out of the
drive because they advocate liberal
social and public policy views.

The groups, organized as the Na-
tional Coalition to Expand Charitable
Giving, expect to go to court soon to
fight their ouster on constitutional
grounds- They have focused their ob-
jections on a section of the president's
executive order that bans participa-
tion in the drive by groups that try to
influence public policy through advo-
cacy, lobbying or litigation.

Among some 36 organizations
likely to be cut from the drive's eli-
gibility list are the NAACP Legal
Defense and Education Fund, the
Vietnam Veterans of America Foun-
dation, the Children's Defense Fund,
the Sierra Club, the Center for Sci-
ence in the Public Interest and legal
defense and education funds for the
National Organization for Women
and Federally Employed Women.

Reagan's order, according to Don-
ald J. Devine, director of the Office of

Personnel Management, will encour-
age federal workers to make payroll
contributions to more traditional
health and welfare agencies that pro-
vide direct services to the poor.

But some of the advocacy groups
affected complain that no other
charitable solicitation drive is lim-
ited in this way. They warn that
mainline charities such as the Amer-
ican Lung Association, Planned Par-
enthood and even United Way,
which collects 72 percent of the con-
tributions, could be excluded be-
cause of the lobbying and legal ad-
vocacy prohibitions.

"It's an assault on private giving,"
argues Robert Bothwell, executive
director of the National Committee
for Responsive Philanthropy.

Payroll deductions to the Com-
bined Federal Campaign (CFC)
raised $13.7 million here and $93
million nationwide from government
workers in 1981, constituting the
largest charity solicitation drive in
the country. Last fall's drive is ex-
pected to top that sum by about 7
percent nationally and 4.5 percent in
the Washington area, although the
total is still being calculated.

With millions of dollars at stake,
groups in the CFC have fought to

stay there and other organizations
have sued for the right to participate
in the drive. Last year's drive includ-
ed liberal and conservative groups
and legal defense funds who would
be barred from participation under
the new executive order.

The new restrictions are being
hailed by the United Way of Amer-
ica, which formed a coalition of 20
other CFC groups last yeai to lobby
for the changes.

"Opening up the campaign to ad-
vocacy or political groups causes
people to get upset," said Steve Del-
fin, director of media relations for
United Way of America. "And when
that happens, they don't designate
[to a specific charity], they boycott."

Delfin said he hope* the impend-
ing regulations implementing the
order will he flexible enough on the
advocacy section so as not to be a
problem for his group.

Newly admitted groups say overall
contributions have climbed as the
drive has been opened up, but Delfin
said United Way-funded agencies lost
S3 million in contributions during the
1982 drive because of the controversy
surrounding the admission of advo-
cacy groups, particularly the National
Right to Work Foundation.

292

FOUNDATION FACT SHEET

5/4/81
GENERAL INFORMATION :

21,505 "active grant -making" foundations

$34.8 billion in assets

$2.24 billion in grants during 1979

Foundations account for approximately 5.2j>ercent of total philanthropic
giving (which totaled over $43 billion in 1979)

Philanthropic expenditures equal between 3-4% of the federal government's
expenditures on education, health, social welfare and science.

Of the 21,505 foundations:

18 821 have assets under $1 million

3,138 have assets above $1 million or make grants totalling at least $100,000

473 have assets above $10 million

41 have assets above $100 million

DISTRIBUTION OF FOUNDATION GRANTS :

Education 29Z International Activities 6Z

Health 20Z Humanities HZ

Sciences & Technology 19 Z Religion 2Z

Welfare l3Z

According to a 1975 National Science Foundation-sponsored study done by
the Human Resources Corporation:

Spanish-heritage groups received 0.8 percent of foundation grant
funds in 1972-73 (they constituted 5 percent of the population)

Asian Americans received 0.1 percent of foundation grant funds (they
constituted 0.6 percent of the population)

Less than half of those grants went to organizations controlled
by the minorities.

According to a 1978 study of 131 Chicago foundations coaimissioned by
Chicago's Donor's Forum: of a total $74 million in grant funds,

1.4Z went to neighborhood and community development

I.7Z to social equality

0.8Z to environment

3.9Z to agencies controlled by Blacks and 0.5Z to agencies controlled
by Hispanics (nearly half of Chicago's population is minority)

70 agencies recieved 70Z of the total; one recipient — the University
of Chicago-received 10Z

National Committee for Responsive Philanthropy, 810-18th St., N.W. Washington, D.C. 20006

293

According to a 1977 study of 196 foundations based in the Southeast which
was commissioned by the Southeastern Council of Foundations: of all
foundation grants,

2% went to minority organizations (minority populations in Southeastern
states range from 12 to 35 percent)

0.5% went to "human rights and minority affairs."

According to a 1978 study of 153 Washington, D.C. foundations done by the

Community Support Fund: of all foundation grants distributed to organiza-
tions which provided apparent benefits to D.C. residents,

2.0% went to legal assistance

2.0Z to housing and neighborhood development

.27Z to employment/labor

.582 to rights of racial minorities, women, elderly and youth

• 27Z to energy/science/transportation

.251 to consumer affairs

. I4Z to economic development/small business

.09Z to public policy

.00Z to natural resources/environment

"St. Albans, a private school, received more than the entire category
of housing and neighborhood development."

According to a 1973 Council on Foundation survey of 460 member foundations:

3.4Z of their grant monies were directed specifically to women (for
scholarships) and/or to primarily feminine organizations or causes

According to a 1979 study by the Ford Foundation:

less than 0.6Z of foundation funding in 1976 went to projects designed
to improve women's rights and opportunities, and

One-third of foundation money for this purpose came from one foundation
during the years 1970-1976.

FOUNDATION GOVERNANCE :

According to a 1977 study by John Nason which was commissioned by the
Council on Foundations:

0.3Z of foundation trustees are minorities

"Foundation trustees are for the most part a self-perpetuating group,
a social and economic elite, .. .still convinced that the foundation is
their private affair."

According to a 1976 study by the Planning Committee for Women in Foundations:

34Z of foundations have no women board members

There are 6.5 males trustees to 1.5 female trustees

19Z of all trustees are women

FOUNDATION ACCESSIBILITY :

According to the Council on Foundations:

less than 500 of the country's 21,505 foundations publish annual reports.

294

Mr. Brooks. Thank you for your very perceptive and well-stated
remarks.

I would like to ask you one question. Do you see the proposed
changes in the OMB circular and CFC regulations as an effort by
the administration to favor only those organizations that are
friendly to it?

Mr. Bothwell. Undeniably so. The main targets for the new
Combined Federal Campaign Executive order are clearly advocacy
organizations such as the NAACP Legal Defense, and Education
Fund, environmental organizations such as the Natural Resources
Defense Council, women's organizations, and many local organiza-
tions similarly advocating on minority, women's, environmental
and other social justice issues.

However, the strange thing, the unintended side effect, is that
the new CFC Executive order is also going to have a tremendous
impact on the very traditional mainline charities that deal with
every manner of social service, housing, economic development,
employment issues in this country. So it is like the administration,
I think, as Congressman Conable has said, tried to use a 16-inch
gun to kill a fly.

Mr. Brooks. I sure thank you.

Mr. Horton.

Mr. Horton. I have no questions. Thank you very much.

Mr. Brooks. Our next witness is Mr. John D. Kessler, vice presi-
dent for public affairs of the American Heart Association. In this
capacity he is director of the office of public affairs here in Wash-
ington. Prior to his current appointment he served for many years
with the Heart Associations of Virginia, Maryland, and Illinois.

Mr. Kessler received his bachelor of science degree from Bradley
University and has worked as a reporter, columnist, and freelance
writer.

We are delighted to have you here and we will appreciate hear-
ing your comments.

STATEMENT OF JOHN D. KESSLER, VICE PRESIDENT FOR PUBLIC
AFFAIRS, AMERICAN HEART ASSOCIATION

Mr. Kessler. Thank you, Mr. Chairman. I am John D. Kessler
and I am vice president for public affairs of the American Heart
Association.

The American Heart Association is a major national voluntary
health organization that was organized in 1949 and that has as its
mission the reduction of premature death and disability from car-
diovascular disease.

The AHA represents some 120,000 volunteers, including 20,000
scientific members, and some 2 million volunteers who are engaged
in its program and fundraising efforts at the community level.

The AHA is a charitable, nonprofit organization and is tax-
exempt under section 501(c)(3) of the Internal Revenue Code.

Mr. Chairman, I appreciate the opportunity to address the com-
mittee on the revision of Circular A- 122 that is currently proposed
by the Office of Management and Budget, and on Executive Order
12404 dated February 10, 1983, which governs the Combined Feder-
al Campaign.

295

The American Heart Association is deeply concerned that the
proposed revision of OMB Circular A-122 and Section 3 of Execu-
tive Order No. 12404 on the Combined Federal Campaign would
force health, educational, and other organizations to make an unac-
ceptable choice, that being either to relinquish their constitutional
right to advocate their positions within lawful limits or to abandon
their role as health providers who depend to some extent upon Fed-
eral grants and contracts or upon the charitable contributions of
Federal personnel to support their programs.

I would like to address two points that are very much at issue
today. First, the Federal Government has a legitimate role and, in
fact, a serious responsibility to protect and promote the health and
welfare of its citizens.

Second, the right of Americans, either individually or collective-
ly, to engage freely in speech and political expression is guaranteed
under the first amendment to the Constitution.

Both of these traditional precepts would be undermined if these
proposals are approved. To receive Federal moneys a health and
welfare regulation would be required by Circular A-122 substan-
tially to curtail, or to give up altogether, its right to advocate its
positions to Congress, to Federal health officials, and to the regula-
tory agencies.

In order to retain the right to advocacy an organization would
have to give up the CFC contributions of Federal employees that
could be, for certain small organizations, an important share of the
resources that enable it to serve health and welfare needs. We at
the American Heart Association strongly object to such a choice
even being suggested, much less ordered.

The American Heart Association would not itself be substantial-
ly affected by the proposed revision of Circular A-122 since we par-
ticipate in few projects that are funded directly by Federal grants
or contracts. We have no quarrel with the requirement that Feder-
al funds should not be used directly to advocate or to influence
public policy.

However, Circular A-122, a masterpiece of hair splitting detail,
goes well beyond that caveat and would make it impossible for
many organizations that receive even small grants to assist the
Congress in its goal to promote a healthier America.

In each of its last three budget proposals the administration has
made major cuts in the funding levels for the biomedical research
and prevention programs of the National Institutes of Health. We
at the American Heart Association, along with the American Lung
Association, the American Cancer Society, and countless other
health organizations make it a point each year to present scientific
testimony to congressional committees about the devastating ef-
fects this lack of funding would have on the research capability
and productivity of the NIH.

Alerted in part by this advocacy Congress has in its wisdom in-
creased NIH funding levels well beyond the President's request
each year. This is but one of many instances in which our ability to
educate and inform the Members of Congress has worked to the
common good. The proposed regulations could prevent such worth-
while undertakings.

296

It would further appear that these measures would remove the
right granted to charitable organizations under section 501(c)(3) of
the Internal Revenue Code to engage in limited advocacy activity.
American Heart feels that this right, now guaranteed under law,
should remain intact. It should not be abridged by agency rulemak-
ing that would directly contravene existing tax laws.

We believe that the proposed revision of Circular A-122 is too
broad and expansive in its definition of political advocacy.

It would extend the definition of advocacy far beyond the scope
of any restrictions currently imposed by Congress through appro-
priations bills, program statutes, or the tax laws.

In point of fact I could not, without invitation, appear before you
today or even submit comment to OMB on future revisions to Cir-
cular A-122 without engaging in political activity as defined in this
proposal.

We believe that the OMB has exceeded its statutory authority
which is to evaluate and oversee the operation of Federal pro-
grams. OMB has no statutory authority to restrict nonprofit orga-
nization grantees from lawful participation in the Federal decision-
making process.

The proposal would exact unreasonable and excessive penalty for
violation of its restrictions. Not only would an organization be
denied reimbursement for political activity but it would also be
denied reimbursement for nonpolitical activities as well.

The American Heart Association urges that A-122 be withdrawn.
If the accounting for expenditure of Federal grant or contract
funds must be revised, the proposed rule should be replaced with
language better conceived, much more narrowly drawn, and more
firmly based on current tax laws and the intent of Congress.

We would also urge that the Executive Order No. 12404 be fur-
ther amended, or at least that the regulations proposed by the
Office of Personnel Management to implement the Executive order
clearly affirm that those organizations who currently have the
right under law to participate in limited political advocacy activi-
ties be allowed to continue those activities without becoming ineli-
gible to participate in the Combined Federal Campaign.

This Executive order was published on February 10, 1983, as an
amendment to Executive Order No. 12353 governing the Combined
Federal Campaign.

The principal effect of the amendment, and one supported by the
American Heart Association and other major health and welfare
organizations, is to limit eligibility for participation in the CFC to
voluntary charitable organizations that provide support for direct
health and welfare services to individuals and their families.

However, the amendment also provided that agencies that seek
to influence the outcomes of elections or the determination of
public policy through political activity or advocacy, lobbying, or
litigation on behalf of parties other than themselves shall not be
deemed charitable health and welfare agencies and shall not be eli-
gible to participate in the Combined Federal Campaign.

In discussions among charitable health and welfare organiza-
tions, this last provision restricting political advocacy has been
termed the baby with the bath water provision.

297

On the one hand it would seem to favor health and welfare orga-
nizations with a special place within the Combined Federal Cam-
paign.

On the other hand, it would deny them eligibility to participate
in the CFC if they continued to engage in activities allowable
under current tax laws.

This seems to be a case of the Executive order giveth, and the
Executive order taketh away.

The American Heart Association sees nothing illegal, improper,
or inappropriate in carrying out our traditional role of advocacy on
behalf of the public health of our Nation. We are already absolute-
ly restricted from any overt political activity by section 501(c)(3) of
the IRC. Strict limitations are imposed therein both on the kind
and the extent of educational and informational efforts we can un-
dertake.

This proposal would force us to choose between a substantial por-
tion of our income from the Combined Federal Campaign and the
lawful execution of our right to advocate public policies that serve
the health interests of all Americans.

I realize that in my comments I have addressed the issue of Cir-
cular A-122 and that of the Executive order on the CFC. Perhaps it
is inappropriate to mingle these separate concerns before this com-
mittee.

One rule, A-122, is being promulgated by the Office of Manage-
ment and Budget, and the regulations to implement the Executive
order will soon be promulgated by the Office of Personnel Manage-
ment.

One wonders how or why these two very similar but separate
issues have arisen within such a short span of time in two separate
agencies of the Federal Government. Perhaps they are but separate
manifestations of a central concern within the administration that
the Congress, in imposing tax laws and other constraints on chari-
table organizations, has somehow been so permissive with respect
to political advocacy that the administration must intervene with
agency rules to correct the situation.

Our hope is that this committee and other committees of Con-
gress will respond by denying funds to these agencies to implement
these rules if they are not, as they should be, withdrawn or at the
very least drastically amended.

Mr. Chairman, I thank you for the opportunity to speak today.

Mr. Brooks. Thank you very much. I have one question, Mr.
Kessler.

If local chapters of organizations such as yours are compelled to
duplicate facilities and personnel in order to comply with the OMB
proposal, do you foresee an increase in the cost of delivering serv-
ices both to the Federal Government and to others?

Mr. Kessler. Yes, sir. Duplication of those services would be im-
possibly costly for small organizations. What very likely would
result is that these organizations would withdraw from advocacy,
would withdraw from seeking to participate in developing the
health plans of their State or city governments.

The advocacy rule is too broad and sweeping. As Mr. Horton
said, it would throw out the baby with the bath water.

Mr. Brooks. Mr. Horton.

298

Mr. Horton. I have no questions.

Mr. Kessler. Thank you.

Mr. Brooks. Now, the first shall be last and the last shall be
first. We have Mr. Jacob Clayman, president of the National Coun-
cil of Senior Citizens, as our last witness. Until his retirement in
1979, Mr. Clayman was president of the Industrial Union Depart-
ment of the AFL-CIO. He was a member of the Advisory Commit-
tee of the 1981 White House Conference on Aging and has served
as the president of the Consumers Federation of America, a
member of the Federal Advisory Council on Employment Security,
and trustee of the United Community Funds and Councils of Amer-
ica.

Mr. Clayman received his bachelor's degree from Oberlin College
in 1927 and his law degree from the University of Michigan in
1930. He has practiced law in Detroit and served in the Ohio Legis-
lature.

We welcome you here today. Please proceed with your remarks.

STATEMENT OF JACOB CLAYMAN, PRESIDENT, NATIONAL
COUNCIL OF SENIOR CITIZENS

Mr. Clayman. Thank you, Mr. Chairman, and Congressman
Horton. That is a better introduction than I normally get, and I
thank you for it.

Mr. Brooks. You deserve it all.

Mr. Clayman. As I come up at the end of this great proceeding I
thought I almost heard a psychic sigh of relief from the people up
front. I think it is a magnificent achievement that you have run
through 29 witnesses or more in this brief period. Let me see if I
can bobtail my written statement.

Mr. Brooks. We will accept the full statement for the record and
you go ahead and make your statement. It is a good statement.

Mr. Clayman. Let me tell you a bit about the National Council
of Senior Citizens to make the case I would like to make. The Na-
tional Council of Senior Citizens intensely, passionately believes in
honest advocacy. We were born in the cradle of typical old-fash-
ioned American advocacy in the early 1960's, the battle for medi-
care started in earnest in the country and in Congress. Answering
the call of that struggle we started the National Council and so we
fought with might and main; and in 1965, we along with others
prevailed in that fight for another piece of social justice for the el-
derly.

Yes, we believe in advocacy for everybody, individuals and orga-
nizations. This is simply another way of saying that we believe in
the first amendment and any impingement of that sacred amend-
ment will make America the lesser for it.

That, in our judgment, is what the new proposed amendments to
Circular A-122 would do.

Another facet of the National Council: We also, for example, for
14 years, through Democratic and Republican administrations,
have managed a portion of the senior community service employ-
ment program known as title V, a Federal program to train elderly
poor people and return them to permanent jobs in the private
sector.

299

In addition, these 54,200 older workers in the program perform
invaluable community services in nursing homes, day care centers,
and in social service agencies. I believe, and I hope this isn't puf-
fery, that we have done a remarkable job of it.

The administrative costs to the Government is only 6.5 percent
and that, Mr. Chairman, is extraordinary. It means that we have
been darned efficient. It means that we have been doing an honest
job. It means that we have not tried to rake any undue profits,
indeed any profits from the program.

No one has raised a finger of concern or criticism at our manage-
ment of the activities in this program. No one has charged that we
have used Federal funds for political purposes. But, apparently, to
those who promulgated the amendments to Circular A- 122, we
have committed the desperate crime of having people who work on
this program housed on one floor of our building which we recently
purchased. We use the same Xerox equipment and the mailroom
personnel for the regular and Federal program, but, of course,
charging the Federal Government only for those services per-
formed in behalf of title V activities.

The amendment says we can't do this, we must move the title V
employees elsewhere, we cannot utilize the economies which the
use of our full facilities makes possible.

In effect, the Government is saying "increase overhead costs, in-
crease the complexity of doing a decent job," and this foolishness
inevitably would hamper our capacity to perform as effectively as
we now do.

Indeed, there are some valid questions that can be asked, that
the Government needs to ask. One, for example, is: Is the organiza-
tion receiving Federal funds and using them efficiently and effec-
tively in furtherance of the law upon which the grant is based?

That is a valid and honest question.

The second question is: Is the organization which is the recipient
of Federal funds using those funds for political purposes? That is a
valid and honest question.

But the OMB amendments go far beyond these sensible and per-
tinent questions and would raise such irrelevant matters as the ab-
solute separation of office space, usage of equipment and other in-
consequential arrangements.

These questions can only serve the purpose of harassment and
not the meaningful purpose of effectively carrying out the mandate
of the law.

Now, then, let me make a very practical little point here. This
program occupies one floor of our building. It is separate from the
rest of the building. It is self-contained. Our charge is, I think, $14
a square foot. If we have to move we would have to pay at least $24
or $26 a square foot. For what purpose? What sense? What practi-
cality?

That is a question that I think the answer to is rather obvious.

But most of all, and this is what is most relevant, at least in my
mind, most of all it will seriously tend to still the voice of advocacy.
It will destroy small organizations of senior citizens, charity insti-
tutions and others which have accepted Federal funds and this, in
my judgment, would be a tragedy.

20-644 0-83 20

300

Heaven knows there are too few organizations now to present
the views of the poor, the consumers and the elderly. The Govern-
ment performs a great disservice to the cause of democracy in our
society by depleting, as it would, inevitably, the ranks of these or-
ganizations by way of this transparent A-122 maneuver.

Presumably, the alleged purpose of this new proposed set of regu-
lations is to remove politics from Federal grants and contracts. But
I am genuinely fearful that the Government's action, itself, is a
piece of Machiavellian political mischief.

You will remember that over the past 2 years those on the far
right of the political spectrum have inveighed against organizations
receiving Federal funds for the poor and the elderly. You will re-
member that they sounded their clarion call to the White House
and Congress trumpeting "Defund the left, defund the left."

My judgment at least is that this present OMB regulation quite
apparently is the Government's response to the right wing's chal-
lenge. Though masked somewhat, the purpose of the administra-
tion, in my opinion, is abundantly clear, indeed transparent: Un-
dermine the nonprofit institutions trying to keep alive the con-
science of America.

We urge you to permit this not to come to pass. It is one of the
great assets that our society has. It is almost a priceless asset that
common citizens, ordinary citizens have the power, for example,
and the right to come before a committee like this and plead their
case. If this is eroded, if this is eroded, we shall be in trouble.

So we ask you to uphold the worth of advocacy in America and
stand fast to the principles of the first amendment.

I probably took more time than I intended to for which I ask
your forgiveness.

Mr. Brooks. We thank you very much. You didn't take too much
time. We enjoyed it. You are a great advocate. You have been one
all your life. You can continue to be one as far as we are con-
cerned.

Mr. Clayman. Thank you, sir.

Mr. Brooks. Mr. Horton?

Mr. Horton. Thank you very much. We are happy you could be
with us. We appreciate your waiting until the tail end. Thank you.

Mr. Brooks. Saved the best for last.

[Mr. dayman's prepared statement follows:]

301

Statement by

Jacob dayman, President
National Council of Senior Citizens

Mr. Chairman, members of the Subcommittee, my name is Jacob
dayman. I am the President of the National Council of Senior
Citizens, a non-profit public interest group dedicated to serving,
protecting and defending the interests of the 4.5 million senior
citizens we represent.

At times, such representation takes the form of political
advocacy — such as when we fought, hand-in-hand with Lyndon Baines
Johnson, for the establishment of a national health insurance
program for the elderly, Medicare. And at times, such representa-
tion takes the form of service delivery — in our case through the
operation of a federal grant program that puts 54,200 low-income
older people to work in 127 communities around the country.

Through these activities, we believe that we are serving the
legitimate interests of our members, and the elderly in general,
and performing a valuable service on behalf of the government.
Beyond the restrictions found in current law, we do not see these
as functions that should be considered mutually exclusive. In
fact, it is far more rational for close coordination to exist be-
tween advocacy and service delivery; without it, the ability of
our government to meet the needs of its citizenry would steadily
deteriorate .

That is why, Mr. Chairman, we were shocked to learn of the
proposed new regulations issued by the Office of Management and
Budget that would fundamentally alter the way in which non-profit
organizations and other government contractors conducted their
business. The proposed regulations, innocuously called amendments
to Circular A-122 "Cost Principles for Non-profit Organizations"
would require a complete segregation of our grant activities from
activities termed "political advocacy." The practical effect of
this proposal would be that either our federally funded senior
citizen employment program and its staff, or individuals involved
in advocacy, including the Executive Director, Legislative Depart-
ment, and Information Department staff would have to leave our
recently purchased headquarters . In order to continue receiving
grant reimbursement, grant activities and advocacy activities
could no longer take place under the same roof.

302

The OMB definition of advocacy goes far beyond any definition
found in current law or regulation and would include among other
changes: 1) any activity that attempts to influence government
decisions through an attempt to affect the opinions of the general
public; 2) any attempt to influence government decisions through
communications with any member or employee of a legislative body
or with any government official or employee who may participate
in the decision-making process; 3) provision of technical advice
or assistance to a governmental body or to a committee unless it
is in response to a written request. This last restriction would
severely hamper communications vital and necessary for effective
grant administration.

According to the OMB notice, the reason for issuing these

proposed revisions to the A-122 Circular is to

ensure that the use of federal grants, contacts
and other agreements by private organizations
engaging in political advocacy does not erode
or infringe these [First Amendment] constitu-
tional rights, or distort the political
process by encouraging or discouraging certain
forms of political activity.

In fact, the effect of these revisions would be to do both.
According to a recent paper prepared by Jack Maskell of the Ameri-
can Law Division of the Congressional Research Service, the pro-
posed rule would restrict the First Amendment protections, OMB
says it is trying to uphold:

...the regulations may work in practice to
restrict the use by private organizations of
their own personnel, equipment and office
space for First Amendment activity if during
some period such personnel or equipment were
used in carrying out a federal grant or con-
tract and the costs of such use were propor-
tionately allocated to that contract or grant.

Moreover, this rule would very definitely distort the politi-
cal process. Clearly, large government contractors, particularly
defense contractors, would be better able to weather this storm
and have ample resources to set up separate offices and continue
their political and lobbying activities. Smaller groups, partic-
ularly community-based organizations with staffs of three or four
people, often use the same resources for both grant and advocacy
activities. The effect of the OMB rules on these groups would be

303

paralyzing. Because the regulations would no longer allow
reimbursement for resources partially used in grant activities
when these resources are also used in privately funded advocacy
activities, such groups would be forced either to give up their
government grants or dispense with their legitimate advocacy
activities.

Mr. Chairman, I believe that these proposed revisions are a
blatant attempt on the part of this Administration to silence
those groups which have expressed opposition to the domestic and
social policy agenda set by President Reagan. The pretension that
these rules merely attempt to separate political advocacy and
government grant activities masks a much more insidious goal, that
is, to force small non-profit organizations to choose between
reliable, secure government funding, or scarce, uncertain private
funds in order to function. The former choice means giving up the
right to participate in the political process; the latter, in
many cases, may mean shutting down.

Regardless of whether these rules are implemented or not,
NCSC will survive. We are a large organization with a secure
base of financial support derived from our members and other sup-
porting groups. Our voices at least, will continue to be raised
in opposition to the policies of this Administration when we see
fit to do so. But we, too, will be affected.

As I mentioned, NCSC operates an older workers' jobs program
of which I believe most of you have heard, the Senior Community
Service Employment Program (SCSEP). For the past 14 years, we
have acted as a conduit between the government and some of its
lowest income senior citizens to train and place older people in
community service jobs. Through this program, thousands of senior
citizens have returned to the mainstream of society, working in
nursing homes, day care centers and social service agencies. Each
year more and more of our Senior Aides are being placed in jobs
in the private sector, thereby achieving an important goal set by
this Administration as an essential part of its employment policy.
With an historic record of administrative costs of under
seven percent, it is no wonder that the Federal government con-
tinues to fund our Senior AIDES Program and to seek our opinion
concerning program modifications and improvements. However, with-
out any question whatsoever, we believe that the proposed OMB
revisions will endanger our fine record of administrative effi-

304

ciency by barring necessary interactions with the government.

In its expanded definition of political advocacy, the regu-
lations specifically cite "providing technical assistance to a
government body" unless requested in writing as one example of
unreimbur sable activities . This would prevent anyone working on
our program staff from notifying the Department of Labor about
any sort of management inefficiency or other problem we note in
our monitoring responsibilities. For example, recently we noticed
that an error in the Department of Labor SCSEP regulations made
everyone with an income 125 percent above the poverty level
eligible for the program. In reality, it is those with incomes
less than 25 percent over the poverty level that are eligible.
If these OMB regulations had been in effect, we would have had
to remain silent about this error until the Department of Labor
found out about it by itself.

Frankly, Mr. Chairman, it would make more sense to consider
the sweeping and radical changes proposed in the OMB Circular in
the face of serious violations of existing statutes and regula-
tions. I know that in the case of NCSC, at least, we go to great
lengths to assure that there is no commingling of federal and
private funds, and that grant activities are separate from
advocacy activities. Our Senior AIDES Program, its personnel and
its office machines are all located on one floor of our small
building. While there is some sharing of other facilities such
as xeroxing and use of mail room personnel, such sharing is
accounted for and the appropriate source is billed for these ser-
vices. No federal funds that are received by NCSC are used for
political purposes.

If the Administration is so convinced that these regulations
are necessary, let them come forth with proof. We have seen
nothing to substantiate the need for this revision.

Mr. Chairman, if these regulations were to go into effect,
the restrictions it would place upon our organization would be
difficult to endure. But, ultimately, the real losers would be
the elderly people themselves. NCSC, along with so many organi-
zations here today, performs a valuable service to this country.
We speak on behalf of those not here to represent themselves.
Together with other aging organizations, we have made great
stride in reducing poverty, ill-health and isolation among our
senior citizens. Our employment program has put thousands back
to work in useful part-time jobs.

These new regulations could well reduce our effectiveness
in all of these areas, and do so to the detriment of millions of
older people. We urge you and the members of this Subcommittee
to oppose the issuance of these rules. Thank you.

305

Mr. Brooks. Both the Congress and the Supreme Court have long
recognized the importance of encouraging and fostering the advoca-
cy of ideas by the private sector. Now the administration has pro-
posed to stifle political advocacy by many of our most respected
and active business and nonprofit organizations. In the process
they threaten the cherished first amendment rights to freedom of
speech and association.

The administration has stated that it will issue revised regula-
tions in about 10 days. In my opinion, the only acceptable revision
may be the immediate withdrawal of the proposal.

I would like to thank all the witnesses that appeared today and
presented testimony. The hearing is adjourned subject to the call of
the Chair.

[Whereupon, at 4:12 p.m., the subcommittee adjourned, to recon-
vene subject to the call of the Chair.]

APPENDIXES

APPENDIX 1.— PROPOSED CHANGES TO OMB CIRCULAR

A-122

Changes Proposed in the "Cost Principles for Nonprofit
Organizations" (OMB Circular A-122) and the
Procurement Regulations of DOD, GSA, and NASA

Ca) The cost of activities constituting political advocacy
are unallowable.

Cb) Political advocacy is any activity that includes:

(1) Attempting to influence the outcome of any
Federal, State, or local election, referendum,
initiative, or similar procedure, through
contributions, endorsements, publicity, or
similar activity;

(2) Establishing, administering, contributing to,
or paying the expenses of a political action
committee, either directly or indirectly;

(3) Attempting to influence governmental decisions
through an attempt to affect the opinions of
the general public or any segment thereof;

(4) Attempting to influence governmental decisions
through communication with any member or employee
of a legislative body, or with any government
official or employee who may participate in the
decisionmaking process;

(5) Participating in or contributing to the expenses
of litigation other than litigation in which the
organization is a party with standing to sue or
defend on its own behalf; or

(6) Contributing money, services, or any other thing
of value, as dues or otherwise, to an organization
that has political advocacy as a substantial
organizational purpose, or that spends $100,000 or
more per year on activities constituting political
advocacy.

(1) Making available the results of nonpartisan

analysis, study, or research, the distribution of
which is not primarily designed to influence the
outcome of any Federal, State, or local election,
referendum, initiative, or similar procedure, or
any governmental decision;

(307)

308

(2)L Providing technical advice or assistance to a
governmental body or to a committee or other
subdivision thereof in response to a written
request by such body or subdivision;

(3) Participating in litigation on behalf of other
persons, if the organization has received a
Federal, State, or local grant, contract, or other
agreement for the express purpose of doing so;

C4) Applying or making a bid in connection with a
grant, contract, unsolicited proposal, or other
agreement, or providing information in connection
with such application at the request of the
government agency awarding the grant, contract,
or other agreement; or

(.5) Engaging in activities specifically required by
law.

(d) An organization has political advocacy as a
"substantial organizational purpose" if:

(.1) The organization's solicitations for membership or
contributions acknowledge that the organization
engages in activities constituting political
advocacy; or

(2) Twenty percent (20%) or more of the organization's
annual expenditures, other than those incurred in
connection with Federal, State or local grants,
contracts, or other agreements, are incurred in
connection with political advocacy.

te) The term, "governmental decisions" includes:

(1) The introduction, passage, amendment, defeat,

signing, or veto of legislation, appropriations,
resolutions, or constitutional amendments at the
Federal, State, or local level;

(.2) Any rulemakings, guidelines, policy statements,
or other administrative decisions of general
applicability and future effect; or

(3), Any licensing, grant, ratemaking, formal

adjudication, or informal adjudication, other
than actions or decisions related to the
administration of the specific grant, contract,
or agreement involved.

309

(f). Notwithstanding the provisions of other cost
principles in this part:

(1) Salary costs of individuals are unallowable if:

(il the work of such individuals includes

activities constituting political advocacy,
other than activities that are both
ministerial and non-material; or

Cii) the organization has required or induced such

individuals to join or pay dues to an organiza-
tion other than a labor union that has political
advocacy as a substantial organizational purpose,)
or to engage in political advocacy during non-
working hours.

(2) The following costs are unallowable:

ti) building or office space in which more than
5% of the usable space occupied by the
organization or an affiliated organization
is devoted to activities constituting political
advocacy;

Cii) items of equipment or other items used in part
for political advocacy;

(iii) meetings and conferences devoted in any part to
political advocacy;

(iv) publication and printing allocable in part to
political advocacy; and

(v) membership in an organization that has political
advocacy as a substantial organizational purpose,
or that spends $100,000 or more per year in
connection with political advocacy.

310
APPENDIX 2.— CRS ANALYSIS

March 9, 1983

John J. Lordan, Chief
Financial Management Branch fflCA ofllul'SA

Office of Management and Budget r^^A i".'.' ,-f\ < H

Washington, DC 20503 .w.' jus'"

Wjv , „.,!,„, PC MM*
Re: Proposed Revisions to Circular A-122 -,,.,,.

Dear Mr. Lordan:

The YMCA of the USA urges the complete withdrawal of the proposed
revisions to Circular A-122 ( Federal Register , January 24, 1983). On
February 18, the Government Affairs Committee of the board of directors
voted unanimously to oppose these amendments. These revisions would
hinder YMCAs locally and nationally in their appropriate roles as com-
munity leaders and service providers. Further, we believe the revisions
directly threaten First Amendment rights to participation in the pro-
cesses of government, as well as exceed OMB's authority.

The nearly 2,000 YMCAs in this country constitute an invaluable reser-
voir of experience in the kinds of people-to-people programs this
Administration has claimed it desires to foster. Most of this work
occurs without government funding. Other programs have required govern-
mental support (sometimes at the government's request ) and indeed apply
that governmental support to fulfill society's obligations more effec-
tively and more efficiently than direct - government action — to meet
needs of the elderly, to help prevent juvenile delinquency, to develop
the job skills of unemployed youth, to resettle refugees, etc.

To preclude the participation of YMCAs and other nonprofit service
providers in public decision-making is to deny them a fundamental
right and to deny government itself the benefit of such informed parti-
cipation. The appropriate relationship of government and the nonprofit
organizations receiving federal funds is already well-defined by restric-
tions in tax law and in the present Circular A-122. We

therefore urge the proposed amendments be withdrawn in Equ- Huff

I'o^iilcnl. \attfnial (tiuitr/1
their entirety.

Ikih Yuitdfrau
t 'i.'.rrmntt. Satumnt Btxtrti
Sincerely, ».!.,„ B. Cusir*

« S~\ /~) £..•■> uliivlVnnor

Solon B. Cousins
Executive Director
YMCA of the USA

cc: House Government Operations Subcommittee on Legislation & National Security
House Judiciary Subcommittee on Civil & Constitutional Rights
Senate Governmental Affairs Subcommittee on Intergovernmental Relations

311

EXECUTIVE SUMMARY

The Office of Management and Budget has proposed amendments to Circu-
lar A-122, "Cost Principles for Nonprofit Organizations" (48 F.R. 3348-
3351, January 24, 1983) which deal with (1) the disallowability of the
costs of a nonprofit grantee or contractor of the federal government for
"political advocacy" activities and (2) the disallowability of the allo-
cation of actual costs of an organization to a federal contract or grant
for the organization's equipment, supplies, and personnel used on that
contract or grant if such items are used at other times for political
advocacy activities. The stated purpose of the proposal "is to ensure
that federal tax dollars are not used, directly or indirectly, for the
support of political advocacy" (48 F.R. 3348). This report discusses
two legal issues concerning this proposal: (1) the authority of 0MB to
issue these restrictions and to promulgate the stated policy and (2)
the First Amendment considerations involved in governmental regulation
of political advocacy of private organizations.

The exercise of legislative power is vested in the Congress, and leg-
islative functions may be exercised by an executive agency only insofar
as the authority to do so is delegated to the agency by Congress. Chrysler
Corporation v. Brown , 441 U.S. 281 (1978); see also Youngstown Sheet & Tube
v. Sawyer , 343 U.S. 579 (1952). Generally, if no express delegation to
act on a particular subject is apparent, the courts will look to determine
if the purposes of an executive rule, regulation or other promulgation
may rationally be within or have a "nexus" to the purpose of a general
statutory delegation of authority. See AFL-CIO v. Kahn , 618 F.2d 784
(D.C. Cir. 1979); Liberty Mutual Insurance Co . v. Freidman , 639 F.2d 164
(4th Cir. 1981).

There is no clear indication of any express statutory delegation of
authority from Congress to the Office of Management and Budget to issue
rules and regulations regarding political advocacy by nonprofit organi-
zations receiving federal grants, nor to establish rules to effectuate
a general governmental policy of non-involvement or nonsubsidization of
advocacy. Insofar as the cost accounting and allocation rules in the
first part of the 0MB proposal prohibit a grantee from allocating to a
federal grant the costs of unauthorized advocacy activities, or the
costs of any advocacy activities unrelated to the purposes of a grant,
such prohibitions on diversion of grant funds may arguably come within
some general delegation of statutory authority to 0MB under a statutory
provision which has grant management, or cost and efficiency purposes,
depending on which statute 0MB cites as providing such general authority
to issue regulations on this subject.

However, as to the second part of the proposal which works to restrict
an organization's use of its own equipment, facilities, and personnel for
First Amendment activities if such items were ever used on a grant and the
costs properly allocated to that grant, the connection with any cost sav-
ings or economy to the government is more obscure. The duplication of

312

- ii

facilities by contractor or grantee organizations which these restrictions
may require if an organization wishes to engage in First Amendment advocacy
and still receive contracts and grants, may in fact provide diseconomies
to the government. The purpose of such a rule which would work, in practice
to prohibit the use of such items on First Amendment advocacy activities
at any time is apparently related to the general goal stated in the OMB
proposal to prevent even indirect "support of political advocacy" and to
prevent government involvement in the private advocacy of ideas, regard-
less of cost or efficiency motives. Arguably, then, the "nexus" of this
part of the proposal to a general statute with management, cost and effi-
ciency purposes, particularly with no record or findings of cost savings
established, would be more tenuous and questionable.

If the restrictions in the OMB policy are found to burden, directly
or indirectly, the exercise of First Amendment rights, then an even more
specific grant of statutory authority, and more specific guidelines from
Congress may be required than in cases such as AFL-CIO v. Kahn, supra ,
and Liberty Mutual , supra , where merely a rational "nexus" between the
policy stated in the executive order and the purpose of a general statutory
delegation was needed to be shown. A further significant distinction to
note in this regard is that the actions challenged in both Kahn and
Liberty Mutual were pursuant to a specific executive order issued by the
President, while in the case of the OMB regulations this policy has been
promulgated with no executive order on the subject. Case law has shown
that the issuance of regulations which affect fundamental liberties, with-
out express delegation of legislative authority nor under a lawful execu-
tive order, particularly where no hearings nor any record on the issue
has been established, might be found to deprive persons of a fundamental
liberty without due process of law. Kent v. Dulles, Secretary of State ,
357 U.S. 116 (1958); Hampton v. Mow Sun Wong , 426 U.S. 88 (1976); Haig v.
Agee , 453 U.S. 280 (1981).

Considering the broad policy nature and purpose of the proposed restric-
tions; the existence of specific congressional enactments in this area,
some with arguably contrary purposes to those stated by OMB; the potential
effect of the OMB restrictions on fundamental liberties guaranteed by the
First Amendment; and the absence of express congressional delegation of
authority to OMB or a specific executive order on this subject, questions
may be raised under judicial precedents as to whether an agency such as
OMB, rather than the Congress or the President, is the proper "level" for
promulgating such a policy. Hampton v. Mow Sun Wong , supra at 102-105,
114-117.

When the substantive prohibitions in the OMB proposal are contrary
to or clash with express or implied authorization from Congress, for
example, for program recipients to advocate for certain persons or groups,
or to promote certain services or items, then the "express or implied will
of Congress" authorizing such activity, evident in a statutory grant or
its legislative history, would arguably take precedence over an OMB policy
issued without express congressional delegation of authority. See Youngs-
town Sheet & Tube, supra.

313

- iii -

The proposal on its face deals with restrictions and regulation of
private persons in the area of the exercise of First Amendment rights.
The OMB proposal does not place a direct prohibition upon engaging in
First Amendment activities. However, the Supreme Court has found that
even indirect burdens on First Amendment freedoms which may result from
governmental action may subject a regulation to a "critical" and exact-
ing scrutiny since the "abridgment of such rights, even though unintended,
may inevitably follow from varied forms of governmental actions". NAACP
v. Alabama , 357 U.S. 449, 460-461 (1958). The impact on First Amendment
rights which the financial requirements and the conditions on advocacy
activities set as requisites for the receipt of federal monies within
the proposal (see Speiser v. Randall , 357 U.S. 513 (1958); Perry v.
Sinderman , 408 U.S. 593, 597 (1972); note also Blitz v. Donovan, Secre-
tary of Labor , 538 F. Supp. 1119 (D.D.C. 1982), vacated as moot , 51
U.S.L.W. 3507, January 10, 1983) may thus arguably subject such regu-
lations to the traditional test of governmental burdens on First Amend-
ment rights, that is, (1) that the government must demonstrate a suffi-
ciently important or compelling governmental interest in the restric-
tions and (2) that the regulation on activity is narrow and precise and
is sufficiently related to the stated governmental interest, that is,
that the regulation is not overbroad. First National Bank v. Bellotti ,
435 U.S. 765, 786 (1978); Buckley v. Valeo , 424 U.S. 1, 14, 25 (1976);
NAACP v. Button , 371 U.S. 415 (1963); Shelton v. Tucker , 364 U.S. 479
(1960).

The significance of the governmental interest asserted in the pro-
posal is difficult to assess because there have been no findings or
record established of the specific abuses or harms at which the restric-
tions are aimed. The general governmental interest stated in the pro-
posal, preventing the use of tax money to support private advocacy, if
stated by the Congress or the President may arguably provide a signi-
cant governmental interest against which a court may weigh the burden
on First Amendment rights arguably imposed by the requirements of the
proposal. However, the sufficiency of this interest asserted by OMB
may be diminished by the fact that neither the Congress by legislation
nor the President by executive order has stated this interest on behalf
of the government in relation to these regulations, and by the related
fact that the express authority of OMB to "legislate" this policy in this
area and assert this general interest is not apparent from any specific
legislation. See Hampton v. Mow Sun Wong , supra at 105, 115-116.

The sufficiency of the interest asserted by OMB must also be measured
against apparently contrary assertions by the Congress in numerous sta-
tutory schemes regarding both the direct and indirect subsidization of
advocacy such as, for example, the use of public tax money to subsidize the
advocacy of presidential candidates, tax provisions to exempt from fed-
eral income taxation nonprofit organizations who may engage in political
advocacy, the indirect subsidization of certain nonprofit organizations
by way of federal tax deductions to the contributors of such organizations
which are allowed to "lobby" to a particular degree, as well as specific
statutory schemes where Congress has appropriated money for programs to
advocate for a certain segment of society such as the poor, the aged,
consumers or minority groups. Additionally, the Supreme Court has noted
our government's "profound national commitment to the principle that debate

314

on public issues should be uninhibited, robust, and wide open", New York.
Times v. Sullivan , 376 U.S. 254, 270 (1964). The Court has specifically
rejected a constitutional challenge to the use of tax money to support
private political advocacy, by finding that there is no constitutional
requirement of government non-involvement or neutrality in First Amendment
advocacy, and holding that the challenged provision is a "use [of] public
money to facilitate and enlarge public discussion and participation in
the electoral process, goals vital to a self-governing people." Buckley
v. Valeo , supra at 92-93.

Both the interest of cost control in preventing the diversion of
grant funds to unauthorised uses, and the interest of fairness in gov-
ernment contracting and the letting of grants, may be important govern-
mental interests which might arguably be asserted by 0MB, depending upon
the statutory grant upon which 0MB relies for its authority to issue
such regulations. The question of overbreadth, however, may be parti-
cularly related to these stated interests. As to fairness in govern-
ment contracting and the prevention of a "spoils system, " there may argu-
ably be "less restrictive means" of accomplishing this objective than
barring all advocacy with any of an organization's equipment or supplies
which had previously been used on, and costs properly allocated to, a
federal grant or contract. See Shelton v. Tucker , supra at 489; Schaum-
berg v. Citizens for a Better Environment , 444 U.S. 620, 637-639 (1975).
The enforcement of rules and regulations requiring the selection of the
most qualified bidder at terms most beneficial to the government, with-
out regard to political bias, may arguably supply a less restrictive
and more effective means of accomplishing this goal. It should also
be noted that there are actually no rules or guidelines in this parti-
cular 0MB proposal to prevent favoritism or a "spoils system" at which
0MB claims the circular is aimed. Thus, grants and contracts could still
be let to favored organizations which have enough private funding to be
financially able to set up separate advocacy facilities, and the regu-
lations therefore may arguably not be sufficiently related to this purpose
stated as their justification. See Schuamberg , supra at 638; Bates v.
City of Little Rock , 361 U.S. 516, 525 (1960); NAACP v. Alabama , supra
at 464. Similarly, the fact that the proposal may burden the use by a
private organization of its own facilities for First Amendment activities,
even when that particular use is proportionally paid for entirely out
of private funds, may arguably not have a sufficient enough connection
to the stated goal of cost control by preventing diversion of grant funds
and the goal of preventing tax dollars to support advocacy, since no gov-
ernment grant funds are diverted nor tax dollars involved in such use. This
part of the regulation may thus arguably be an overbroad restriction
sweeping within its scope protected First Amendment activities not hav-
ing a sufficient enough relationship to the stated governmental objec-
tives and interests.

Questions may therefore be raised under a First Amendment analysis
as to both the sufficiency of the governmental interest asserted by 0MB
in the restrictions, and as to the "overbreadth" of the application of
the restrictions.

315

ANALYSIS OF POTENTIAL LEGAL ISSUES WHICH MAY EE RAISED CONCERNING OMB
PROPOSED AMENDMENT TO CIRCULAR A-122, REGARDING POLITICAL ADVOCACY
BY NONPROFIT GRANTEES OF THE FEDERAL GOVERNMENT

This report discusses potential legal and constitutional issues which may
be raised concerning the proposed amendments by the Office of Management and
Budget to Circular A-122, "Cost Principles for Nonprofit Organizations", see
48 F.R. 3348-3351, January 24, 1983. The proposal deals with (1) the dis-
allovability of the costs of a nonprofit grantee or contractor of the federal
government for activities which are related to what OMB has characterized as
"political advocacy", and (2) the disallowability of the proportional alloca-
tion of actual costs of an organization to a federal contract or grant for the
organization's equipment, supplies, and facilities used on that contract or
grant if such equipment, supplies and facilities belonging to the organization
were used at other times for the organization's advocacy activities. Due to
the timeliness of the issue, and the required response time, this report will
provide an overview of only two legal issues which may arise concerning the pro-
posal, in response to congressional inquiries on those two issues: (1) the
authority of OMB to issue such regulations, and (2) First Amendment considera-
tions involved in government regulation of political advocacy of private
organizations.

The proposed amendments to the OMB circular specifically provide that:
"The cost of activities constituting political advocacy are unallowable".
(Proposed paragraph B 33 a.). This provision in the first instance would
require that nonprofit organizations receiving federal grant or contract
money from an agency or department of the federal government not use such

20-644 0—83 21

316

CK.S-2

aoney to pay for or support, nor allocate costs to a federal grant for, activi-
ties of the organization which fall within 0MB' s purview of "political advo-
cacy". The tern "political advocacy" is defined in the proposed amendments
to include (1) an attempt to influence the outcome of any election, referen-
dum or initiative at the state, local or federal level; (2) supporting,
establishing, or contributing to a political action corxnittee; (3) attempting
to Influence governmental activity by affecting public opinion; (A) attempting
to influence governmental decisions through direct communication with mem-
bers or staff employees of a legislative body, or of any agency participating
in the decisionmaking process; (5) contributing to or participating in the
expenses of any litigation except that in which the organization is a party
with standing to sue or defend on its own behalf; (6) supporting or contributing
money to an organization that has political advocacy as a substantial organiza-
tion purpose or which spends $100,000 a year on political advocacy. Activities
which would not constitute political advocacy under the circular include (1)
making available results of nonpartisan analysis, study or research the dis-
tribution of which is not primarily designed to influence an election or legis-
lation; (2) providing technical advice or assistance to a governmental body or
a committee or any subdivision of such upon the specific written request of
the committee or body; (3) participating in litigation on behalf of others
when such is the purpose of a grant or agreement; (4) applying or making a
bid for a contract or grant; and (5) engaging in activities specifically re-
quired by law. (Proposed paragraph 3 33 b. and c. )

In addition to the straight disallowance of advocacy costs, the pro-
posal provides that a proportional part of the salary of an Individual work-
ing on a federal contract or grant may not be allocated to that federal con-
tract or grant if any other part of that person's duties for the private

317

CRS-3

organization is to engage in "political advocacy", or if such person is re-
quired or "induced" to join or pay dues to an organization engaged in sub-
stantial political advocacy (other than a labor organization) or is required
or induced to engage in political advocacy during non-working hours. The pro-
posal also provides in effect that costs for items which a private organization
uses in part for carrying out a federal contract of grant, such as costs for
equipment, printing, and meetings, are not allowable or attributable to that
grant if such items are used at other times for political advocacy (Proposed
paragraph B 33 f.) Such restrictions would also apply to the organization's
office space if more than 5 percent of that space is used at times for political
advocacy (Proposed paragraph B 33 f (2) (a)).

OMB AUTHORITY TO ISSUZ RESTRICTIONS

As discussed in more detail later in this report, the Supreme Court has
held that Congress has a wide latitude to properly legislate restrictions on the
use of funds that it appropriates, and may properly legislate certain narrow
restrictions which nay have an indirect burden on First Amendment rights when
such provisions have a substantial relationship to the promotion of a suf-
ficiently compelling governmental interest. In the context of the proposal
under consideration, however, questions may be raised as to the authority of
the Office of Management and Budget, as opposed to the Congress, to issue
broad rules and restrictions which by their nature regulate and effect the
political advocacy and other First Amendment activities of private, nonprofit
organizations which receive federal grant or contract money.

Justice Rehnquist, writing for a unanimous Court in the case of Chrysler
Corp . v. Brown , 441 U.S. 281 (1978) explained:

318

CRS-4

The legislative power of the United States is vested
in the Congress, and the exercise oi quasi-legislative
authority by governmental departments and agencies oust
be rooted in a grant of such power by the Congress . . .
441 U.S. at 302, and be reasonably within the con-
templation of that grant of authority, 441 U.S. at
306.

In addition to statutory authority, arguments could be advanced that an
executive action is based on an inherent authority of the President. How-
ever, as noted by Justice Jackson concurring in the opinion of Youngstown
Sheet and Tube v. Sawyer, 343 U.S. 579 (1952), overturning President Truman's
seizing of private steel mills as unauthorized: "When the President acts
pursuant to an express or implied authorization of Congress, his authority
is at its maximum, . . . When the President acts in absence of either a
congressional grant or denial of authority, he can only rely upon his own
independent powers, . . . When the President takes measures incompatible
with the expressed or implied will of Congress, his power is at its lowest
ebb. ..." 343 U.S. at 635-637. The United States Court of Appeals for
the District of Columbia Circuit in the case of AFL-CIO v. Kahn , 618 F.2d
784 (D.C. Cir. 1979) stated that: "The Supreme Court has recently criti-
cized the interpretations of appropriations measures as implied approvals
of substantive administration action, see TVA v. Hill , 437 U.S. 153, 190
S.Ct. 2279, 57 L.Ed. 2d 117 (1978), and much lncertalnty attends any claim
of "implied" or "Inherent" presidential authority under the Constitution . "
618 F.2d at 791-792, note 40, emphasis added.

Thus, the inquiry concerning the authority and validity of an execu-
tive agency regulation and rule will generally focus on whether there is a
statutory grant of authority from Congress to that agency delegating to the
agency Congress' legislative authority over the particular issue in question.

319

CRS-5

As noted by the United States Court of Appeals in the case of Liberty Mutual

Insurance Conpany v. Friedman , 639 F.2d 164 (4th Clr. 1981), ruling that

affirnative action requirements of an Executive Order for private insurers

of governnent contractors were beyond the executive's pouer as delegated fron
Congress in the general Procurement Act:

The question before us is not whether Congress
could require [private] insurance companies provid-
ing worker's compensation insurance to federal con-
tractors to comply with the affirmative action re-
quirements -of Executive Order 11,246, the question
is "whether or to what extent Congress did grant . . .
such authority" to the executive branch of govern-
ment. See NAACP v. Federal Power Comr^sslon , 425
U.S. 662, 665, 96 S.Ct. 1806, 1809, 48 L.Ed. 2d 284
(1976). 639 F.2d at 168.

No specific or express statutory grant of authority is cited within the
0MB proposal which delegates legislative authority to 0MB to issue regulations
and restrictions regarding political advocacy and First Amendment activities
of non-profit organizations who receive federal contracts or grants. Further
research into federal law has similarly uncovered no express statutory grant
of legislative authority to the Office of Management and Budget to issue rules
and regulations concerning advocacy and First Amendment activities by nonprofit
grantees and contractors of the United States Government or concerning the
general principle of government non-involvement in private advocacy activities.

However, the inquiry does not end there. The Court of Appeals in the
Liberty Mutual case, supra , stated that: "A congressional grant of legislative
authority need not be specific in order to sustain the validity of regulations
promulgated pursuant to the grant, but a court must 'reasonably be able to
conclude that the grant of authority contemplates the regulations issued'."
639 F.2d at 169, citing Chrysler Corp . v. Brown , supra at 308. Thus, general

320

CRS-o

grants of authority to 0MB aust arguably be examined to determine if such
statutes contemplated the issuance of the regulations in question, that
is, to determine if the proper "nexus" exists between the purpose of the
regulations and the purpose of the statutory ^rant of authority, AFL-CIO
v. Kahn , supra . If such a "nexus" exists the regulations may meet the
requirement that executive power "must be exercised consistently with the
. . . purposes of the statute that delegates that power." Id_. at 793.

No general statutory authority was cited to by 0MB in the issuance of
the proposed amendments to Circular A-122, nor in the promulgation of the
original circular. Several statutory provisions give 0MB authority such as
to review agency budget requests, prepare the budget, and to study, evaluate
and develop plans for implementing better management, coordination, and or-
ganization in the executive branch of government with "a view to efficient
and economical service" (31 U.S.C. § 18a, see Budget and Accounting Act, 31
U.S.C. §§ 1-24, note Reorganization Plan No. 2 of 1970); to issue guidelines
to standardize the language used in government contracts and grants "to
achieve uniformity in the use by the executive agencies of such instruments"
(41 U.S.C. § 508, 501(b)) so as "to eliminate ineffectiveness and waste
resulting from confusion over the definition and understanding of legal
instruments used to carry out transactions" (S. Rpt. No. 95-449, 95th Con-
gress, at 2); and to provide "overall direction of procurement policies,
regulations, procedures and forms" through the establishment of the Office
of Federal Procurement Policy within 0MB (41 U.S.C § 402(b)) to promote
and improve "economy, efficiency, and effectiveness in the procurement of
property and services by the executive agencies" (41 U.S.C. § 402(a),
§ 401).

321

CRS-7

It is not clear precisely what statutory authority CKIS relies upon
for these restrictions such that a detailed analysis of the purposes of
such statute could be provided herein. If general statutory authority such
as described above is relied upon for the authorization of OMB to issue
the regulations and restrictions in question then the required "nexus"
with these statutes night arguably be the purpose of "economy and efficiency"
in government contracts and grants, similar to the President's authority
under the Procurement Act. In the case of AFL-CIO v. Kahn , supra , the
United States Court of Appeals for the District of Columbia examined the
general authority of the President under the Federal Property and Administra-
tive Services Act (or Procurement Act) to issue an Executive Order, and
for the Office of Federal Procurement Policy to implement that Order, to
require that certain federal contractors be in compliance with the President's
wage and price guidelines. (See E.O. 12092, 43 F.R. 51375 (1978), 43 F.R. 60772

(1978)). The Court found that the goals of the Procurement Act "can be

found in the terms 'economy' and 'efficiency' which appear in the statute

and dominate the sparse record of the congressional deliberations" (618 F.2d

at 788). The Court there concluded:

Because there is a sufficiently close nexus between
those criteria and the procurement compliance pro-
gram established by Executive Order 12092, we find
that program to be authorized by the FPASA.

1/ Kahn differs from the case in question in two significant ways.
In the first instance the challenged program in Kahn was initiated by an
Executive Order issued by the President. Here, no Executive Order has
been Issued on the subject of political advocacy by non-profit organizations.
Secondly, and related to the first distinction, the activities regulated in
the proposal, unlike those in Kahn , relate to "fundamental liberties" such
as those guaranteed by the First, Fifth, and Fourteenth Amendments (see Hampton
v. Mow Sun Wong , 426 U.S. 88 (1976)). '

322

CRS-8

Consequently we conclude that Executive Order 12092
is in accord with the "economy and efficiency"
touchstone of the FPASA. By acting to restrain
procurement costs across the entire Government
the President was within his Section 205(a)
powers.

We wish to emphasize the importance to our
ruling today of the nexus between the wage and
price standards and likely savings to the Govern-
ment. . . . The procurement power must be exer-
cised consistently with the structures and pur-
poses of the statute that delegates that power.
618 F.2d at 792, 793

The required "nexus" between an executive order and the general author-
izing statute (the Procurement Act) was found to be absent by the United
States Court of Appeals for the 4th Circuit in the case of Liberty Mutual
Insurance Company v. Friedman , supra . The challenged provisions in that
case concerned affirmative action requirements for private insurance com-
panies who were providing unemployment compensation insurance coverage to
government contractors. The court noted that unlike a previous case cited
there were no findings nor record established that the requirements of the
executive order would be likely to produce savings to the Federal Government.
The court found:

Assuming, without deciding, that the Procurement
Act does provide constitutional authorization for some
applications of Executive Order 11,246, we conclude
that, in any event, the authorization could validly
extend no further than to those applications satisfy-
ing the nexus test used in Contractors Association
and Kahn . Applying that test here, we are satisfied
that it is not met.

In applying the test, it is important first to
note a respect in which the record before the Con -
tractors Association court differed materially from
that developed in this case to show the relationship
between Procurement Act criteria and Executive Order
application. In Contractors Association , but not in
the instant case, there were factual findings in the
record which tended to show a demonstrable relation-
ship between the two which was not apparent from a
consideration alone of the Act and the Order.

323

CXS-9

Before the plan challenged in Contractors Associa-
tion was implemented, a series of public hearings
was held in the targeted area that resulted in ad-
ministrative findings which reflected serious under-
representation of minority employees in six trades.
The mathematical disparity was found to be caused
by exclusionary practices of trade unions rather
than any lack of qualified minority applicants in
labor pool. 442 t .2d at 164, 173. These findings
buttressed the Contractors Association court's con-
clusion that the Executive was acting to protect the
federal government's financial interest in the state
projects thereby establishing the sufficiently close
nexus sought by both the Contractors Association and
Kahn courts. Cf_. Fullllove v. Klutznick , U.S.

_, 100 S.Ct. 2758, 2785-90, 65 L.Ed. 2d 902 (1980)
(Powell, J.,' concurring: importance of legislative
findings of discrimination to sustain Act of Congress
mandating affirmative action in federal grants for
local public works projects).

By contrast, no such findings were made in the
case before us. . . . The connection between the
cost of workers' compensation policies, for which
employers purchase a single policy to cover em-
ployees working on both federal and nonfederal con-
tracts without distinction between the two, and
any increase in the cost of federal contracts that
could be attributed to discrimination by these
insurers is simply too attenuated to allow a re-
viewing court to find the requisite connection
between procurement costs and social objectives.

639 F.2d at 170-171.
In the 0MB proposals under consideration, there were similarly no
hearings, findings, nor record of abuses or waste of government funds in
the area of political advocacy by private organizations receiving federal
grants which purported to demonstrate the cost saving or increase in effic-
iency and economy to the government which would result from these restric-
tions. Since no record is apparent, the connection must therefore be on the
face of the provisions relative to the stated purpose of the restrictions.
Cost savings to the government were stated as a purpose or goal of these
provisions in relation to preventing "diversion" of grant funds to political
use. (48 F.R. 3349). Certainly, a restriction on the use of federal funds
or restricting the allocation of costs to federal grants or contacts for

324

CRS-10

non-authorized advocacy activity or any other activity when not in connec-
tion with the objectives of a federal grant or contract, that is, the di-
version of grant funds, would arguably appear on its face to have cost
saving and econony implications.

However, as to the general stated objective of the proposal, that is,
to insure that the government is not subsidizing, directly or indirectly, any
political advocacy, and in particular as to the provisions of the proposal
which disallow any costs of an organization's facilities and equipment to be
proportioned to their actual use on a government grant if at other times such
facilities or equipment of the organization are used for First Amendment advocacy
activities, the "nexus" to cost savings or economy objectives is more obscure.
The savings to the government in preventing a private nonprofit organization
from using its own equipment for advocacy if such equipment had ever been used
on, and actual costs for such use allocated to a government grant, is not
readily evident. The purpose of this part of the proposal does not appear
to have any connection with nor does it appear to have been intended to have
objectives of cost savings, economy, and efficiency of carrying out or implementing
a particular government grant or contract.

Rather, the intent is apparently the achievement of the stated broad
philosophical goal of government neutrality and non-involvement, through even
the most indirect government "subsidy", in private advocacy. For example, if
a grant were let to "promote" better health care facilities for the elderly,
and the most efficient and economical method of obtaining that objective, from
a practical and a cost benefit analysis standpoint, were actually to use re-
sources to advocate more state, local, or federal funding for such facilities
or to advocate for better regulation of such facilities as nursing homes, private
clinics and the like, such activity would still be prohibited with grant funds
under the circular. Thus, the purpose and the effect of the proposal would be

325

CRS-ii

co cease direct and even "indirect subsidies" to advocacy by private organiza-
tions under a grant or contract regardless of cost or efficiency considerations.
Furthermore, as iiscussed later with respect to First Amendaent considerations,
the requireaent of setting up separate advocacy facilities, personnel and
equipment which the proposal would necessitate if organizations wished to exer-
cise their First Amendaent advocacy rights and still participate in governaent
grants and contracts (48 r.R. 3350) aay arguably provide severe diseconomies
to the federal government because of the cost in the duplication of the
facilities of its contractors and grantees.

It should be noted that the issue of whether Congress has delegated
legislative authority to an agency aay require an even more critical ex-
amination when, as here, the regulations in question may impact on protected
First Amendment rights. The cases have found that when "fundamental liberties"
such as those guaranteed by the First, Fifth and Fourteenth Amendments are
involved, there is required even greater specificity and guidelines from
Congress in its delegation to the agency, and any delegating language relied
upon to affect those rights will be construed narrowly. In such a situation,
particularly when general governmental policy is being made, the Court may
look for express congressional delegation or an action pursuant to a specific,
lawful Executive Order ( Hampton v. How Sun Wong , 426 U.S. 88 (1976), Kent
v. Dulles, Secretary of State , 357 U.S. 116 (1958)). Without such express
congressional delegation or action pursuant to an executive order, an agency
regulation which burdens or restricts "fundamental liberties" such as First
Amendment rights (particularly as in Hampton , supra and the circular in ques-
tion where there is no record of hearings or consideration of the impact of
the provisions, see 426 U.S. at 116) may be found to be a deprivation of
"liberty" without due process of law ( Hampton , supra at 102-103, Kent v.
Dulles , supra at 129).

326

CRS-12

The standards required for delegation of legislative authority from the

Congress when First Amendment issues are at stake were expressed by the Supreme

Court in Kent v. Dulles , supra :

Since we start with an exercise by an American citizen
of an activity included in constitutional protection,
we will not readily infer that Congress gave the Sec-
retary of State unbridled discretion to grant or with-
hold it. . . • [T]he right [involved] is a personal
right included within the word "liberty" as used in
the Fifth Amendment. If that "liberty" is to be regu-
lated, it must be pursuant to the law-making functions
of the Congress. Youngstown Sheet & Tube Co . v. Sawyer ,
supra . And if that power is delegated, the standards
oust be adequate to pass scrutiny by the accepted test,
[citations omitted] Where activities or enjoyment,
natural and often necessary to the well being of an
American citizen. . . . are involved, we will construe
narrowly all delegated powers that curtail or dilute
them. See Ex parte Endo , 323 U.S. 283, 301-302. Cf.
Hannegan v. Esquire, Inc . 327 U.S. 146, 156; United
States v. Rumely , 345 U.S. 41, 46.

357 U.S. lat 129
As to the required specificity and guidelines in delegations of authority,
it should be noted that in the later case of Haig v. Agee , 453 U.S. 280
(1981), the Supreme Court found that despite a lack of express language dele-
gating to the Secretary of State authority to "revoke" passports on national
security grounds, the "broad rule-making authority granted in the [Passport]
Act," 453 D.S. at 291, the specific authority in the Act for the Secretary
to "grant and issue passports, and cause passports to be granted and issued,
and verified in foreign countries" (22 U-S.C. § 211a (1976, Supp. Ill),
453 U.S. at 290), the "consistent administrative construction" of the Act
(453 U.S. at 291), and the traditional role of the executive in the areas
of foreign policy and national security (453 U.S. at 291) all lead to imply
that the revocation of a passport on national security grounds by the
Secretary "is 'sufficiently substantial and consistent' to compel the con-
clusion that Congress has approved it" (435 U.S. at 306).

327

CSS- 13

The proposed regulation on political advocacy by private nonprofit
organizations issued by the Office of Management and Budget thus may require
even a more critical scrutiny than those regulations examined unaer Khan and
Liberty Mutual where merely a rational "r.exus" '-as looked for between the
executive order and the delegating statute of a general nature. When First
Amendment activity is sought to be regulated thore may need to be shown an
express delegation of congressional authority and/or a specific executive
order by the President under a proper delegation to him. Unlike the Issues
of delegations of authority looked to in Kahn and Liberty Mutual , the OMB
provisions deal with First Amendment activity and were apparently not issued
pursuant to a specific executive order on this subject. In certain circumstances,
even where First Amendment rights are potentially involved, express delegation
of congressional authority to perform the exact act in question may not be re-
quired if the general rulemaking authority of the agency delegated by statute
is broad enough and the specific grants of authority (along with consistent
administrative action and congressional recognition of the executive's role
in such an area) indicate congressional approval of the action under some
statutory grant of authority. It is not clear whether such statutory
authority and delegation is present In the situation under examination.

Since the OMB circular states a general governmental policy and goal

which has a national impact and application (non-subsidization and government

2/
non-involvement in private advocacy), and which may burden fundamental

First Amendment rights, an executive agency such as OMB, without express

congressional delegation of authority to the agency concerning the stated

2/ Expression of an arguably contrary goal and policy by Congress is
discussed in section of this report on First Amendnent issues concerning
sufficiency of the stated governmental interest, pp. 24-29.

328

CR.S-14

goal nor a specific executive order evident, may arguably not be the proper

"level" for prooulgating or "legislating" such a policy. As stated by the

Court in Hampton in overruling a Civil Service Commission regulation of

citizenship requirements for public employment when neither the Congress nor

the President had established such a policy:

Indeed we deal with a rule that deprives a discrete
class of persons of an interest in liberty on a whole-
sale basis. By reason of the Fifth Amendment, such
a deprivation must be accompanied by due process.

When the Federal Government asserts an overriding
national interest as justification for a [proposed]
rule. • . , due process requires that there be a
legitimate basis for presuming that the rule was
actually intended to serve that interest. If the
agency which promulgates the rule has direct respon-
sibility for fostering or protecting that interest,
it may reasonably be presumed that the asserted
interest was the actual predicate for the rule.
That presumption would, of course, be fortified
by an appropriate statement of reasons identifying
the relevant interest. Alternatively, if the rule
were expressly mandated by the Congress or the
President, we might presume that any interest which
might rationally be served by the rule did in fact
give rise to its adoption.

In this case the petitioners have Identified
several interests which the Congress or the Presi-
dent might deem sufficient to justify the exclusion
of noncitizens from the federal service.

The difficulty with all of these arguments except
the last is that they do not identify any interest
which can reasonably be assumed to have influenced
the Civil Service Commission, the Postal Service,
the General Services Administration, or the Depart-
ment of Health, Education, and Welfare in the admin-
istration of their respective responsibilities or,
specifically, in the decision to deny employment to
the respondents in this litigation. We may assume
with the petitioners that if the Congress or the
President had expressly imposed the citizenship re-
quirement it would be justified by the national
interest in providing an incentive for aliens to
become naturalized, or possibly even as providing
the President with an expendable token for treaty

329

CRS-15

negotiating purposes; but we are not willing to
presume that the Chairman of the Civil Service Com-
mission, or any of the other original defendants,
was deliberately fostering an interest so far
removed from his normal responsibilities.

426 U.S. at 102-105
The question of 0MB authority to issue the restrictions and regulations
on advocacy activity is most significant when the substantive rules in the
0MB circular clash with or are apparently contrary to specific congressional
enactments. This may be the case in situations where Congress has authorized
programs to be funded" to "advocate" for a certain segment of the population
such as the poor, the handicapped, consumers or certain minorities, or to
"promote" certain services or items, such as health care for the aged or
the poor. (See, e.g., 42 U.S.C. § 6805; 42 U.S.C. § 9501; 42 U.S.C. § 3030d,
see subsection (a)(10); 42 U.S.C. § 6012; 29 U.S.C. § 796f).

It should be noted that even when Congress has not expressly used the
language "advocate" or "promote" it has been ruled by the Comptroller General
of the United States that an organization may have been authorized by Congress
by statutory language to engage in such advocacy activities. Thus, the Comp-
troller General found that the advocacy of the adoption of the Equal Rights
Amendment by the Coordinating Committee of the National Commission for the
Observance of International Women's Year was not an unlawful lobbying with
federal funds by a federal agency and was appropriate activity under the
statutory language:

The goals of the Conference, as enumerated in
section 3(b) of Pub. L. 94-167, also seems to us
quite consistent with the activities conducted by
the Conference leaders. See particularly paragraph
(5) of section 3(b) which directs the Conference to
"identify the barriers that prevent women from par-
ticipating fully and equally in all aspects of
national life, and develop recommendations for aeans
by which such barriers can he reuoveo . " Without
expressing any opinion on its merits, it appears to

330

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us that a recommendation that the conference support
the ratification of the ERA is a legitimate alterna-
tive in no way prohibited by the Statenent of con-
ference goals.

Opinion of the Comptroller General of the
the United States, 3-182398, August 8, 1977,
at 2. Emphasis in original.

The 0MB proposal would by its terms exempt only litigation when it is
the purpose of a grant, and advocacy activity "specifically required by law"
(proposed Paragraph B33, c (3) and (5)), as opposed to all that activity
authorized by Congress. Where the 0MB restrictions and regulation of
advocacy, not based on express delegation of authority from Congress,
conflicts in this way with the "express or implied will of Congress",
it may be argued, using Justice Jackson's analysis in the Youngstown
case that the executive power "is at its lowest ebb" ( Youngstown Sheet
and Tube , supra at 637), and therefore the express or implied congressional
authorization to engage in such activities may arguably supercede the cir-
cular rules based neither on express congressional delegation of legislative
authority nor a specific executive order ( Youngstown Sheet & Tube , supra ;
Chrysler Corp . v. Brown , supra ; see specifically 55 Comp. Gen. 911 (1976)
where the Comptroller General characterized provisions of an 0MB Circular,
A-102, as "matters of executive branch policy which do not establish
legal rights and responsibilities.")

It should also be noted that Congress has enacted legislation and
appropriations restrictions in the past when it specifically desired that
grant and/or contract funds should not be used for lobbying or propaganda
purposes in specific situations. Such restrictions are placed by statute,
for example, on the Legal Services Corporation to make sure that grants
or contracts it lets are not used for unauthorized lobbying or political

331

CRS-17

activities (42 U.S.C § 2996(f) (a) (5) ) . Additionally, language included
In yearly appropriations acts places lobbying restrictions on contract
and grant money froa three executive departments: Labor, Health and Human
Services, and the Education Department. This restriction prohibits the
use of contract or grant money "to pay the salary or expenses of any
grant or contract recipient or agent acting for such recipient to engage
in any activity designed to influence legislation or appropriations pending
before Congress" (P.L. 97-92, Sec. 101(a)(2) incorporating by reference
H.R. 4560, 97th Congress; see also P.L. 96-536, Sec. 101(a)(4) and P.L.
96-123, Sec. 101(g) incorporating by reference H.R. 4389, 96th Congress;
and P.L. 95-480, Sec. 407). Thus, Congress has placed specific and narrow
restrictions on the use of grant and contract funds when it has deemed
such restrictions appropriate. This may arguably evidence Congress' de-
termination on this issue, since no general, overall restriction, nor
one vith such broad application to all advocacy activities of grantees,
has been adopted by Congress.

One final point should be examined as it applies to any implied "con-
gressional consent" for the issuance of this circular by 0MB under general
statutory authorizations. It should be noted that the restricted "political
advocacy" under the proposal would include contact by a nonprofit organiza-
tion's personnel with a Member of Congress concerning pending, proposed or
planned legislation if such communications may be interpreted as any attempt
to influence a governmental decision (Proposed paragraph B33 a (4)). This may
potentially curtail or limit the information, assistance and communication flow
between Members of Congress and local nonprofit organizations who receive
federal grants or contracts, even if the contact or request for assistance

20-644 O— 83 22

332

CRS-1S

on proposed legislation or any governmental decisionmaking is initiated by
the Member. The proposal exempts only: "Providing technical aavice or
assistance to a governmental body or to a committee or other subdivision
thereof in response to a written request by such body or subdivision"
(Proposed paragraph B33 c (2), emphasis added). Thus, if a Member wishes
assistance, advice or ideas on a proposed piece of legislation from com-
munity action organizations or any community organization from his district,
if such organization receives federal contracts or grants, such organization
may possibly be restricted or limited in responding to the Member unless
the Member has a committee or subcommittee chairman place a request for
Information from the organization in writing. Such a restriction upon a
Member's access to information, assistance, suggestions, and expertise from
organizations and groups within his district, or national groups as well,
may provide further arguments that such restrictions were not consented
to, intended, or implied in any general congressional delegation of legis-
lative authority to the Office of Management and Budget.

FIRST AMENDMENT ISSUES

The restrictions contained in the proposal, dealing as they do with
regulations upon political advocacy by private organizations who receive
grants or contracts, operate by their nature in the area of the exercise
of rights guaranteed by the First Amendment to the Constitution, that is,
freedoms of speech, association and petition. In preliminary comments to
the amendments to Circular A-122 the Office of Management and Budget stated
its opinion that these restrictions will not infringe upon the First Amend-
ment rights of recipient organizations:

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Recipients remain free to engage in political advocacy
on any side of an issue. The proposals aerely insure
that organizations engage in political advocacy at
their own expense - not the public's. If an organi-
zation chooses to exercise its First Amendment rights,
it is only fair that it keep those political activi-
ties separate from its work at the expense of the
public. It should not expect to have its political
advocacy subsidized, or to be able to put facilities
purchased in part by tax dollars to political use.
48 F.R. 3349, January 24, 1983.

If the proposals did in fact merely deal with a narrow congressional
restriction on the use of contract or grant funds let from federal agencies
to private nonprofit organizations, then the legal and constitutional im-
plication would arguably not be significant. As a general rule and within
certain constitutional limitations, Congress may place certain restrictions
and conditions upon the use of funds it appropriates. The Supreme Court has
noted the following general proposition: "That Congress has wide discretion
in the matter of prescribing details of expenditures for which it appropriates
must, of course, be plain." Cincinnati Soap Co . v. United States , 301 U.S.
308, 321-322 (1937).

Concerning the proposal in question, however, the restrictions proposed
are not limitations enacted by Congress in the legislative process, nor are
they merely narrow restrictions on the use of funds received from the federal
government. The intent and effect of the regulations have a far broader
impact than merely disallowing non-authorized advocacy costs of an organiza-
tion. Instead, the regulations may work in practice to restrict the use by
private organizations of their own personnel, equipment, and office space for
First Amendment activity if during some period such personnel or equipment
were used in carrying out a federal grant or contract and the costs of such
use were proportionally allocated to that contract or grant. For example,

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CRS-2J

if a copying machine were used 5 percent of its time for a government grant
project and 5 percent of its costs were thus allocated to the federal ^rant,
the practical effect of the proposal would apparently be to restrict the
organization from using this machine for any First Amendment advocacy activities
the other 95 percent of its time even if all private, and no federal funds
supported the costs of such advocacy. (See OMB explanation, questions and
answers, 48 F.R. 3349, and Proposed paragraph B33 f(2)).

Such a restriction on the use of an organization's equipment, person-
nel and facilities would appear to have an impact on the First Amendment
activities of an affected organization. The regulations may pose a particu-
lar burden on an organization with limited private resources which could not
afford to purchase or lease new equipment, rent additional office space, and
hire new personnel for its non-federal First Amendment advocacy or community
action activities. If the organization attempted to assign the costs of new
equipment, facilities and personnel entirely to the federal grant or con-
tract, and pass the additional costs of duplicating such personnel and equip-
ment on to the federal government, such additional cost considerations may
place it at a poor competitive advantage in bidding for, proposing or seeking
federal grants or contracts. (If such duplication Is necessitated on a wide-
spread basis by private nonprofit organizations generally, the costs to the
government for grant or contract programs and studies may be significantly in-
creased). The cost considerations of setting up duplicate facilities, and
funding and administrative difficulties imposed on private organizations under
these proposals may thus arguably present a burden on First Amendment advocacy
activities. Similarly, the potential choice between seeking federal grant or
contract money or exercising protected First Amendment activities which the
proposal may necessitate may act to chill the exercise of such rights.

335

CRS-21

The OMB proposal does not place a direct restriction or pronibition upon
engaging in First Amendment activities by nonprofit organizations. Thus, it
nay be argued that any decision to forego political advocacy by such groups
if they wish to participate in grants and contracts is merely an indirect
restraint "resulting from self -censorship" ( United States v. Harrlss , 347
U.S. 612, at 626). However, it arguably may not satisfy the constitutional
objections to say that if an organization wishes to continue to do advocacy
activity and cannot afford to duplicate all of its facilities, equipment
and personnel, then it could just not seek federal grants or contracts; or in
the alternative if it wishes to have federal contracts or grants, then it
must merely give up its advocacy activities. As a general proposition, it
has been noted by the Supreme Court that: "The First Amendment's protection
against governmental abridgment of free expression cannot properly be made
to depend on a person's financial ability to engage in public discussion."
Buckley v. Valeo , 424 U.S. 1, 49 (1976); see also Harper v. Virginia Board
of Elections , 383 U.S. 633 (1966), re poll tax; Bullock v. Carter , 405
U.S. 134 (1972) re candidate filing fees. Similarly, the Supreme Court
has held that the government may not condition the receipt of a government
benefit upon the abdication of one's First Amendment rights. To do so
would in effect allow the government to restrict indirectly speech and
activity which it could not directly prohibit. (Spelser v. Randall , 357
U.S. 513 (1958); Perry v. Slnderman , 408 U.S. 593 (1972); see also Blitz
v. Donovan, Secretary of Labor , 538 F. Supp. 1119 (D.D.C. 1982), vacated
as moot 51 U.S.L.W. 3507, January 10, 1983). In the case of Perry v.
Slnderman, the Court stated:

336

CRS-22

[The government] aay not deny a benefit to a person
on a basis that infringes his constitutionally pro-
tected interests — expecially, his interest in free-
dom of speech. For if the government could deny a
benefit to a person because of his constitutionally
protected speech or associations, his exercise of
those freedoms would in effect be penalized and
inhibited. This would allow the government to
"produce a result which [it] could not command
directly." Speiser v. Randall , 357 U.S. 513, 526.
Such interference with constitutional rights is
impermissible.

408 U.S. at 597

Although the provisions of the proposal are not a direct prohibition on
First Amendment activity, the protection afforded public advocacy extends to
potential restrictions by the government which operate Indirectly upon persons
and groups, as well as to those which place a direct prohibition or restric-
tion on that activity. In the case of NAACP v. Alabama , 357 U.S. 449 (1958),
the Supreme Court noted the "chilling effect" upon the "freedom to engage in
association for the advancement of beliefs and ideas" that certain state
actions may indirectly have:

Of course, it is immaterial whether the beliefs
sought to be advanced by association pertain to
political, economic, religious or cultural matters,
any State action which may have the effect of cur-
tailing the freedom to associate is subject to the
closest scrutiny.

The fact that [the State] . . . has taken no
direct action, (citations omitted), to restrict
the right of petitioner's members to associate
freely, does not end the Inquiry into the effect
of the production order. (citations omitted).
In the domain of these indispensable liberties,
whether of speech, press, or association, the
decisions of this Court recognize that abridg-
ment of such rights, even though unintended, may
inevitably follow from varied forms of govern-
mental action, (357 U.S. at 460-461; see Gibson
v. Florida Legislative Investigation Committee ,
372 U.S. 539, 544 (1963); Bates v. Little Rock. ,
361 U.S. 516 (I960); S helton v. Tucker , 364 U.S.
479 (I960)).

337

CRS-23

Public advocacy, participation in and discussion of governmental affairs

and public issues, and the right to associate for such purposes have been

found by the Supreme Court to "operate in the area of the nost fundamental

First Amendment activities". 3uckley v. Valeo , 4.24 U.S. 1, 14 (1976). The

Supreme Court in Buckley noted the following:

Discussion of public issues . . . are integral to
the operation of the system of government established
by our Constitution. The First Amendment affords
the broadest protection to such political expres-
sion in order "to assure [the] unfettered inter-
change of ideas for the bringing about of political
and social changes desired by the people." Roth v.
United States , 354 U.S. 476, 484 (1957). Although
First Amendment protections are not confined to "the
exposition of ideas," Winters v. New York , 333 U.S.
507, 510 (1948), "there is practically universal
agreement that a major purpose of th[e] Amendment
was to protect the free discussion of governmental
affairs. . . ." Mills v. Alabama , 384 U.S. 214,
218 (1966).

424 U.S. at 14

The right to political advocacy, although fundamental, is not necessarily
absolute. The Supreme Court has found, however, that a governmental burden
upon that right must survive "exacting" and "critical scrutiny" and thus
could be sustained only if the state "demonstrates a sufficiently important
interest" ( Buckley , supra at 25), and that such restriction "be closely drawn
to avoid unnecessary abridgment" of the fundamental right of political ad-
vocacy. ( First National Bank v. Bellotti , 435 U.S. 765, 786 (1978); Buckley
v. Valeo , supra ; KAACP v. Button , 371 U.S. 415, 438 (1963); Shelton v. Tucker ,
364 U.S. 479, 488 (I960)).

338

CRS-24

Governmental Interest

As to the sufficiency of the governmental interest in the 0M3 proposal
in comparison to the potential burden on First Amendment rights, it is diffi-
cult to assess the importance of preventing the precise abuses and harm at
which the proposals are aimed, since unlike the established procedures in
which Congress legislates such restrictions, there are no hearings, reports,
nor findings connected with this executive fiat. Thus, there is no record
established of particular abuses or harm to the government or the public
at which the prohibitions are directed.

The explanatory material preceding the proposed amendments noces that
the general goal of the circular is to prevent the federal government from
subsidizing directly or indirectly the political advocacy activities of
private organizations and to cease government involvement in the private
advocacy of ideas. Such a general interest stated by Congress pursuant to
findings in the legislative process, or even expressed in an Executive Order
pursuant to the President's lawful authority, may arguably provide a court with
a substantial governmental interest against which to balance the potential bur-
den on First Amendment activities. However, the circumstances under considera-
tion may mitigate against the compelling nature of the governmental interest
asserted when such restrictions are issued by an agency of the government
without hearings, record or specific findings on the issue, and not pursuant
to express congressional findings and delegation of authority, nor pursuant to
a specific Executive Order (see Hampton v. Mow Sun Wong , 426 U.S. 88, 103-105,
115-117 (1976)). The Court in Hampton v. Mow Sun Wong , supra , overturned a
Civil Service Commission regulation regarding citizenship requirements for
federal employment which was not based on an express congressional finding

339

CRS-15

and delegation of authority, nor on an Executive Order. As to the sufficiency
of the governmental interests asserted to overcone burdens on "fundamental
liberties" guaranteed by the Fifth and Fourteenth Amendments, the Court

stated:

We may assume with the petitioners that if the
Congress or the President had expressly imposed
the citizenship requirement, it would be justified
by the national interest in providing an incentive
for aliens to become naturalized or possibly even
as providing the President with an expendable token
for treaty negotiating purposes; but we are not
willing to presume that the Chairman of the Civil
Service Commission, or any of the other original
defendants, was deliberately fostering an interest
so far removed from his normal responsibilities.
Consequently, before evaluating the sufficiency of
the asserted justification for the rule, it is im-
portant to know whether we are reviewing a policy
decision made by Congress and the President or a
question of personnel administration determined
by the Civil Service Commission.

The Civil Service Commission, like other adminis-
trative agencies, has an obligation to perform
Its responsibilities with some degree of expertise
and to make known the reasons for its important
decisions. There is nothing In the record before
us, or in matter of which we may properly take
judicial notice, to indicate that the Commission
actually made any considered evaluation of the
relative desirability of a simple exclusionary
rule on the one hand, or the value to the service
of enlarging the pool of eligible employees on
the other.

In sum, assuming without deciding that the
national interests identified by the petitioners
would adequately support an explicit determina-
tion by Congress or the President to exclude all
noncitizens from the federal service, we conclude
that those interests cannot provide an acceptable
rationalization for such a determination by the
Civil Service Commission.

426 U.S. at 105, 115, 116

340

CRS-25

The sufficiency of the governmental interest asserted by 0MB must also
be evaluated in light of arguably contrary congressional and judicial deter-
minations of governnental interests in this area. Thus, both the Congress
and the Supreme Court have recognized an important governmental interest in
encouraging, fostering, and even subsidizing the advocacy of ideas in the
private sector. The Supreme Court has noted as a general concept our
"profound national commitment to the principle that debate on public issues
should be uninhibited, robust, and wide open" ( New York. Times v. Sullivan ,
376 U.S. 254, 270 (1964)), and has specifically upheld legislation to "use
public money to facilitate and enlarge public discussion". . . . ( Buckley
v. Valeo , supra at 92-93.) The legislation adopted by Congress which was
upheld by the Court in that case provided for public tax revenues to be
distributed to private political campaigns to directly subsidize the polit-
ical advocacy of presidential candidates. (See P.L. 92-178, § 801; P.L.
93-53, § 6; P.L. 93-443, §§ 403-408; 26 U.S.C. §§ 6096, 90U1-9012, 9031-9042).
Congress has further provided assistance and subsidies to private nonprofit
organizations which may advocate in the general forms of exemption from
federal taxation on the income and receipts of such organizations (see gen-
erally 26 U.S.C. § 501(c)); has provided incentives and indirect subsidies
by way of tax deductions for individuals who contribute to certain nonprofit
organizations which are allowed to engage in a designated amount of lobbying
and "grassroots" lobbying activities (see 26 U.S.C. §§ 170, 501(c)(3), 501(h)),
and has included such advocacy groups in the latest Federal United Way Cam-
paign where federal employees, in federal buildings and on government time,
participate in fund raising activities on behalf of such private nonprofit
advocacy groups (see Executive Order No. 12353, March 23, 1982, and NAACP
Legal Defense and Education Fund, Inc . v. Campbel l, 504 F. Supp. 1365 (D.D.C.
1981).

341

CRS-27

The OMB proposal states the general principle that the government should
not be involved in the advocacy of varying and competing private ideas by
private parties, and that in using tax monies to directly or indirectly en-
courage or subsidize advocacy would force taxpayers to support ideas with
which they may disagree. This argument, however, as a constitutional ob-
jection to government assistance to advocacy in the private sector has
specifically been rejected by the Supreme Court in the case or Buckley v.
Valeo , supra , in upholding the constitutionality of the feaeral financing
of presidential political campaigns. As to the argument- of preventing
government "involvement" in private advocacy of ideas, which was argued
something akin to the noninvolvement of the government In religion re-
quired by the establishment clause, the Court noted that there is no such
noninvolvement or "neutrality" requirement as to First Amendment advocacy
rights, other than religion:

Appellants next argue that "by analogy" to the
Religion Clauses of the First Amendment public fi-
nancing of election campaigns, however meritorious,
violates the First Amendment. We have, of course,
held that the Religion Clauses — "Congress shall
make no law respecting an establishment of religion,
or prohibiting the free exercise thereof" — require
Congress, and the States through the Fourteenth
Amendment, to remain neutral in matters of religion.
E.g . , Abington School Dlst . v. Schempp , 374 U.S.
203, 222-226 (1963). The government may not aid
one religion to the detriment of others or impose
a burden on one religion that is not imposed on
others, and may not even aid all religions. E.g . ,
Everson v. Board of Education , 330 U.S. 1, 15-16
(1947). See Kurland, Of Church and State and the
Supreme Court, 29 U. Chi. L. Rev. 1, 96 (1961).
But the analogy is patently inapplicable to our
issue here. Although "Congress shall make no law
. . . abridging the freedom of speech, or of the
press," Subtitle H is a congressional effort, not
to abridge, restrict, or censor speech, but rather
to use public money to facilitate and enlarge pub-
lic discussion and participation in the electoral

342

COS-23

process, goals vital Co a self-governing people.
Thus, Subtitle H furthers, not abriages, pertinent
First Amendment values.

424 U.S. at 92-93

A lower federal court had earlier ruled in a different factual situation that

the First Amendment did not prohibit the jovernnent from expending public

II
monies on the advocacy of controversial issues. Citing to a United States

Court of Appeals case, Joyner v. Whiting , 477 F.2d 456, 461 (4th Cir. 1973)

the District Court in the case of Arrlngton v. Taylor , 380 F. Supp. 1348,

1364 (D.N.C. 1974), stated:

More fundamentally, the notion that it is un-
constitutional and somehow violative of the
rights of individual members of society for a
government to advocate a particular position is
erroneous. . • . What is condemned by the free
speech guarantee of the First Amendment Is not
advocacy by the government, but rather conduct
which limits similar rights guaranteed to
individual members of society.

A further objective of the 0MB circular appears to be preventing a "spoils
system" in government whereby organizations politically friendly to the current
administration would receive the bulk of the contracts and grants. The 0MB cir-
cular cites to the case of El rod v. Burns , 427 U.S. 347 (1976), as justification
for the sufficiency of this Interest. It' should be noted initially that the
factual circumstances in Elrod v. Burns , supra , and the later related case of
Brantl v. Finkel, 445 U.S. 507 (1980), do not relate to advocacy by private
organizations receiving government contracts or grants, but rather deal with
the infringement of First Amendment rights of public employees subject to
patronage dismissals when they do not possess the "proper" (vis-a-vis the

2/ See also General Accounting Office Opinion of September 10, 1976,
B-130961-O.M.

343

CRS-29

incoming administration) political party credentials. The advocacy restric-
tions in the 0>IB proposal are not limited to partisan political party activity
or affiliation but extend even to nonpartisan First Amendment activity and the
exposition of ideas and opinions on public issues. Most significantly, unlike
the holding in Elrod v. Burns and 3ranti v. Flnkei , the object of the 0MB pro-
posal is not to preserve government benefits regardless of the political or
philosophic propensity of the recipient, but rather the impact may arguably be
to cease funding those who exercise such rights of speech, expression and
petition.

As discussed above, there are no findings or record provided by 0MB
of abuses regarding a "spoils system" or favoritism in contracts and grants
which is sought to be rectified by these restrictions. However, if such
abuses exist, stroTrg arguments could be made that the prevention of such
favoritism is a legitimate and important governmental interest. The major
issue concerning the OMB proposal in relation to this stated interest,
in addition to the issue discussed above as to the level of such policy
making, may be the second part of the required First Amendment test, that
is, the overbreadth doctrine.

Overbreadth

Even if a sufficient governmental interest were found within OMB's
capacity to justify the burden on First Amendment rights, Supreme Court
cases have shown that a further constitutional requirement is that re-
strictions in the area of First Amendment activities be narrow and not
overbroad. The overbreadth doctrine requires that such regulations be
drafted "precisely" and narrowly. As stated by the Supreme Court in
United States v. Robel , 289 U.S. 25C, 265 (1967): "It has become axiom-
atic that precision of regulation must be the touchstone in an area so

344

CRS-30

closely couching our Dost precious freedoms". Thus, Che Courc will serine

down provisions which broadly sweep wichin Cheir rescriccions boch procecced

and unprocecced speech and accivicy ( N'AACP v. Buccon , supra ; ApCheker v.

Secrecary of Scace , 378 U.S. 500, 512-513 (1964); Shelcon v. Tucker , supra ;

Schaumburg v. Cicizens tor a beccer Environpenc , 44 U.S. 620, 637-639; and

where "less incrusive" ( Schaumburg , supra ) measures, Chac is, chose which

lease incerfere vich rights of expression, are available. The Courc in

Shelcon v. Tucker scaced specifically:

In a series of decisions this Courc has held chac,
even chough che government purpose be legicimace and
subscancial, Chac Che purpose cannot be pursued by
means Chac broadly stifle fundamental personal lib-
erties when the end can be more narrowly achieved.
The breadth of legislative abridgment must be viewed
in light of less drastic means for achieving the same
purpose.

364 U.S. at 488

Finally, In relation to the overbreadch doccrine, che Courc has insisced that

there be a "substantial relationship" ( Schaumburg , supra at 638) between

the regulation on expression and the purported governmental interest asserted

as its justification (See Bates v. City of Little Rock , 361 U.S. 516, 525

(1960); NAACP v. Alabama , supra at 464; Buckley v. Valeo , supra at 25). In

a practical sense, this may require the regulations to effectively deal with

the proported problem and reason for cheir enaccment.

If "fairness" in contracting and providing grants were the objective of

the 0MB circular, then signif icancly narrower guidelines, less obcrusive on

Firsc Amendmenc righes, mighc arguably be promulgaced Co enforce requiremencs

Chac concracts and grants be let to the most qualified applicant in cerms

mosc favorable Co Che governmenc, wlchouC regard Co policical bias. Barring

all Firsc Amendmenc accivicies of all nonprofic organizacions wich cheir own

345

CRS-31

facilities and equipment if they were used at any time on a federal contract
or grant and the costs of such use were allocated to that contract or grant,
say arguably not be the "least restrictive means" of accomplishing the goal
of "fairness" in contracting and grant letting. The regulations within the
circular provide no rules or guidelines to insure "fairness" or equity in
the grants or contracts that are let unaer the existent standards. Thus,
larger nonprofit organizations with enough private resources to establish
a separate advocacy branch, which are politically favorable to an adminis-
tration or an agency, would not be prevented from receiving the bulk of
the money and sore favorable treatment under these provisions.

A further overbreadth issue may arguably arise in the context of the
objective of preventing private organizations from being "subsidized" with
government funds. If this were the objective, then regulations narrowly
disallowing costs of unauthorized advocacy activity (that is where Congress
has not authorized that funds be used to promote or advocate for a certain
cause or objective) would arguably reach that objective. As now proposed,
the regulations may work in a practical sense, by way of disallowing costs,
to restrict groups from much advocacy with their own equipment and facilities
even when the costs of that proportional use were, under proper cost accounting
procedures, totally borne by private money. Thus, the regulations, since
speech not funded by the federal government may be restricted, might arguably
sweep within its prohibitions protected speech and activity, unrelated to
the stated objectives of the circular.

Vagueness

A principle of First Amendment regulation somewhat akin to the over-
breadth doctrine is the "vagueness" doctrine which requires specificity in
First Amendment restrictions so that protected conduct will not be deterred

346

CRS-32

by questions of the applicability of vague and unclear prohibitions. (See
Smith v. Goguen , 415 U.S. 566 (1974); Hynes v. Mayor of Oradell , 425 U.S.
610 (1976); Young v. American Mini Theatres , 427 U.S. 50 (1976)). Thus,
the definitions employed by 0MB for "political advocacy" may need to be
examined for their potential impact on first Amendment activity. "Political
advocacy" is defined broadly to cover not only partisan political activities,
but also to nonpartisan discussions and advocacy on public issues, and to
such things as nonpartisan community action and legal representation of
another. The restriction might also reach and encompass consultations and
information sharing with local community leaders to share common concerns,
and with other nonprofit groups that do advocate. Many questions may thus
arise concerning a group's liaison activities with other nonprofit groups,
with other units or subgroups of its own organization engaged in advocacy,
and with community governmental units seeking solutions to local and regional
issues, as well as questions about attending meetings and forums where possible
solutions to problems are discussed, as to whether such activity and community
involvement would constitute restricted "advocacy". In addition to the
practical effect of adversely affecting the effectiveness of local groups who
may be cut off from community involvement, the restrictions imposed by the
financial requirements, and the breadth of the restrictions and the concurrent
questions that they raise may arguably chill protected First Amendment activi-
ties of covered private, nonprofit organizations participating in federal grants
or contracts. If this were the case, narrowing and explanatory guidelines may
be required.

347

CRS-33

CONCLUSION

The exercise of legislative power is vested in the Congress, and legis-
lative functions may be exercised by an executive agency only insofar as the
authority to do so is delegated to the agency by Congress. Generally, if
no express delegation to act on a particular subject is apparent, the courts
will look to determine if the purposes of an executive rule, regulation or
other promulgation may rationally be within or have a "nexus" to the purpose
of a general statutory delegation of authority to the agency.

There is no clear indication of an express statutory delegation of
authority from Congress to the Office of Management and Budget to issue
rules and regulations regarding political advocacy by nonprofit organizations
which receive federal grants, nor to establish rules to effectuate a general
governmental policy of non-involvement and non-subsidization of advocacy in
the private sector. Insofar as the cost accounting and allocation rules of
the OMB proposal prohibit a grantee from allocating to a federal grant the
costs of unauthorized advocacy activities, or any advocacy activities un-
related to the purposes of a grant, such prohibitions on diversion of grant
funds may arguably come within some general delegation of statutory authority
to OMB under a statutory provision which has grant management, or cost and
efficiency purposes, depending on which statute OMB cites to as providing
such general statutory authority.

However, as to the provisions of the proposal which work, to restrict
an organization's use of its own equipment, facilities, and personnel for
First Amendment activities if such items were ever used on a grant and
the proportional costs allocated to that grant, the connection with any
cost savings or economy to the government may be more obscure. The dupli-
cation of facilities by contractor or grantee organizations which these

20-644 0—83 23

348

CRS-34

restrictions may require, may in fact provide diseconomies to the government.
The purpose of such a rule which would work in practice to prohibit the use
of such items on First Amendment advocacy activities at any time is apparently
related to the general goal stated in the OMB proposal to prevent even in-
direct subsidization of an organization which advocates and to prevent govern-
ment involvement in the private advocacy of ideas, regardless of cost or
efficiency motives.

Since the restrictions in the OMB policy may effect the exercise of
First Amendment rights, an even more specific grant of statutory authority,
and more specific guidelines from Congress might be required than in cases
such as AFL-CIO v. Kahn , supra and Liberty Mutual , supra , where merely a
rational "nexus" between the policy stated in an executive order and the
purpose of a general statutory delegation was needed to be shown. It is
also significant that the actions challenged under both Kahn and Liberty
Mutual were pursuant to a specific executive order issued by the President,
while in the case of the OMB regulations no executive order has been issued
on this subject. The issuance of regulations on fundamental liberties
without express delegation of legislative authority or under a lawful
executive order, particularly where there were no hearings nor any record
on the effects of the provisions and issues in question, may in some
instances arguably deprive persons of a fundamental liberty without due
process of law.

Considering the broad policy nature of the proposed restrictions, the
stated purpose of those restrictions, their affect on fundamental liberties,
and the absence of express congressional delegation of authority or a
specific executive order on this subject, questions may be raised under

349

CRS-35

judicial precedents as to whether an agency such as OMB, rather than the
Congress or the President, is the proper "level" tor promulgating such a
policy decision.

A significant issue related to OMB's authority to issue these restric-
tions arises when the substantive prohibitions in the OMB proposal are
contrary to or clash with express or implied authorization from the Congress
for program recipients to advocate for certain persons or groups or promote
certain items. When this is the case it would appear that the express or
implied will of Congress, evident in a statutory grant or legislative
history, would arguably take precedence over an OMB policy issued without
express congressional delegation of authority.

The question of OMB authority to promulgate broad governmental policy
in this area reflects also on the First Amendment issues. The impact on
First Amendment rights which the proposal may have in practice may arguably
subject such regulations to the traditional test of governmental burdens on
First Amendment rights, that is, that the government must demonstrate a suf-
ficiently important or compelling governmental interest which is promoted
by a narrow and precise regulation on First Amendment activities.

The general governmental interest stated by the proposal, government
non-subsidization of and non-involvement in private advocacy, if stated by
the Congress or the President may arguably provide a sufficient governmental
interest to justify the burden of First Amendment rights imposed by the
requirements of the proposal. However, the sufficiency of the interest
asserted may be diminished by the fact that neither the Congress nor
the President has expressly stated this interest in relation to the regu-
lations, and the fact that the express authority of OMB to "legislate" in

350

CRS-36

this area and assert this general interest is not apparent on the face of
any specific legislation. The sufficiency of the interest of the government
as asserted by 0MB must also be measured against apparently contrary asser-
tions by the Congress in numerous statutory schemes where, for example, public
tax monies are made available to private parties for their political advocacy,
and where Congress has established tax provisions to exempt nonprofit
groups which advocate from federal income taxation, and to subsidize contribu-
tions to certain nonprofit groups which are allowed to lobby to a particular
degree. Further, the supreme Court has found that government neutrality and
non-involvement in private advocacy is not constitutionally required and has
upheld the financing of private political campaigns with tax revenues as a
proper "use [of] public monies to facilitate and enlarge public discussion
and participation in the electoral process, goals vital to a self-governing
people" (424 U.S. at 93).

The interest of fairness in government contracting and the letting of
grants may be an important governmental interest which may arguably be
asserted by 0MB. The question of overbreadth, however, is particularly
relevant to this stated interest, since there may arguably be less re-
strictive means of accomplishing this objective than barring all advocacy
with any of an organization's equipment or supplies which had previously
been used on, and costs proportionally allocated to, a federal grant or
contract. Rules and regulations requiring the selection of the most quali-
fied bidder at terms most beneficial to the government without regard to
the political bias of the organization may arguably supply a less restric-
tive and more effective means of accomplishing this goal. It should also be
noted that there are actually no rules and guidelines in this particular

351

CRS-37

OMB proposal to prevent favoritism or a "spoils system" at which OMB claims
the circular is aimed. Thus, grants and contracts could still be let to
favored organizations which have enough private funding to be financially
able to set up separate advocacy facilities. Finally, the fact that the
proposal may burden the use by an organization of its own facilities for
First Amendment activities even when that particular use is proportionally
paid for entirely out of private funds, may arguably not have a sufficient
enough connection to the stated goal of non-subsidization of advocacy and
arguably be an overbroad restriction sweeping within its scope protected
First Amendment activities.

Thus, questions may be raised under a First Amendment analysis as to
both the sufficiency of the governmental Interest asserted by OMB in the
restrictions, and as to the "overbreadth" of the application of the re-
strictions.

Legislative Attorney
American Law Division

352

*" ft ^>^ • *- Congressional Research Service

: ^ii^;. - ? The Library of Congress

< » a ■>

Washington, D.C. 20540

USE OF FEDERAL CONTRACT OR GRANT MONEY FOR LOBBYING PURPOSES

Jack Haskell

Legislative Attorney

American Law Division

October 1, 1982

353

USE OF FEDERAL CONTRACT OR GRANT MONEY FOR LOBBYING PURPOSES

This report discusses the propriety of using federal contract or
grant money by private recipients for the purposes of lobbying the United
States Congress.

Initially it should be noted that there is within federal law a
criminal prohibition, as well as yearly appropriations restrictions, >■
against the use of federally appropriated funds for the purpose of

lobbying the Congress. There is, however, no clear indication from
the legislative history of the criminal statutory provision, nor the
judicial or administrative interpretations of either provision, that
such prohibitions would reach private individuals using monies under
their control which have been received by way of federal contracts or
grants. These general prohibitions on lobbying with appropriated funds
apparently go to "executive branch" or "administrative lobbying" by the
federal agencies and their officers and employees who use congressional
appropriations to their agencies for the prohibited purposes, rather than
attaching to private parties who do not receive appropriations from
Congress but who receive contract or grant funds from United States
departments and agencies. Indeed, the criminal prohibition on lobbying
with appropriated funds, at 18 U.S.C. § 1913, by the specific language of

1/ See 18 U.S.C. § 1913; and Treasury Postal Service and General
Governmental Appropriations Act, e.g., P.L. 97-51, P.L. 97-85, P.L. 97-92
and P.L. 97-161 continuing appropriations as established in H.R. 4121,
97th Cong., see Sec 608(a); P.L. 96-369 and P.L. 96-536 continuing
appropriations as established in H.R. 7583, 96th Cong., see Sec. 607(a);
P.L. 96-74, Sec. 607(a); P.L. 95-429, Sec 607(a).

354

CRS-2

the provision, applies its penalities only to an "officer or employee
of the United States or of any department or agency thereof".

There appear to be no specific requirements under federal law
that instruct all agencies as a matter of course to seek prior
contractual assurances that funds they make available to private
parties by way of procurement or services contracts or grants will
not be used by such private parties for lobbying or propaganda
purposes. However, there may be either statutory or appropriations
language, or specific "strings" attached to a particular contract or^
grant, which could place restrictions on lobbying upon those
funds made available to private contractors or grantees through

particular federal programs or from certain federal departments

or agencies. Additionally, in some circumstances, such, as where

an agency is involved in funding a continuing joint government-private

industry project or other activity where continued government approval,

participation or endorsement is indicated, and the agency is aware of

propaganda activities by the private parties with contract or grant

funds, an agency may arguably have some responsibility concerning its

continued funding of those activities to prevent a violation of the

3/
general anti-lobby ing provisions from being imputed to the agency.

2/ See 42 U.S.C. § 2996f(a)(5) re grantees and contractors of
the Legal Services Corporation; and Labor, Health and Human Services
and Education Departments Appropriations acts, e.g., P.L. 97-92,
Sec. 101(a)(2) incorporating by reference H.R. 4560, 97th Cong.

3/ See Report of the Comptroller General of the United States:

"Problems With Publications Related to the Clinch River Breeder Reactor

Project", B-130961, January 6, 19 78; Comptroller General Opinion,

B-128938, July 12, 1976.

355

CRS-3

Specific Restrictions on Grantees or Contractors

As noted above, there may be specific statutory or appropriations

language against the use of particular contract or grant money for

lobbying or advocacy purposes. In such a case the affirmative

responsibility might rest with the federal agency or bureau letting

the contract or grant. For example, in the case of the funds made

available by contract or grant by the Legal Services Corporation,

a specific statutory provision requires that the Corporation insure

that such funds are not used for lobbying purposes by the recipient

organization (42 U.S.C. § 2996f (a) (5) ) :

§2996f. Grants and contracts
(a) Requisites.

With respect to grants or contracts in connection
with the provision of legal assistance to eligible
clients under this subchapter, the Corporation shall —

(5) insure that no funds made available to
recipients by the Corporation shall be used at any
time, directly or indirectly, to influence the issuance,
amendment, or revocation of any executive order or
similar promulgation of any Federal, State, or local
agency, or to undertake to influence the passage or
defeat of any legislation by the Congress of the
United States, or by any State or local legislative
bodies ....

Specific language included in yearly appropriations acts places

lobbying restrictions on contract and grant money from three executive

departments: Labor, Health and Human Services, and the Education Department.

This restriction prohibits the use of contract or grant money "to pay

the salary or expenses of any grant or contract recipient or agent

acting for such recipient to engage in any activity designed to

influence legislation or appropriations pending before Congress"

(P.L. 97-92, Sec. 101(a)(2) incorporating by reference H.R. 4560,

356

CRS-4

97th Congress; see also P.L. 96-536, Sec 101(a)(4) and P.L. 96-123,
Sec. 101(g) incorporating by reference ll-R. 4389, 96th Cong;
and P.L. 95-480, Sec 407). This language is somewhat narrower
than the Legal Services Corporation prohibition, as this appropriations
restriction goes only to the use of contract or grant funds to lobby
the United States Congress, while the Legal Services Corporation
statute goes to the use cf funds to lobby state or local legislatures,
or to lobby on executive orders or similar promulgations of any federal,
state or local agency, as well as on legislation before Congress.

The Comptroller General of the United States has interpreted the
provision of the Labor/HHS Appropriations Act to restrict contract
and grant recipients from expending funds received from a federal
contract or grant from one of the designated departments for "grass roots"
lobbying activities, that is, for "an indirect attempt to influence
pending legislation by urging members of the public to contact
legislators to express support of, or opposition to the legislation
or to request them to vote in a particular manner." (Decision of the
Comptroller General, B-202787, May 1, 1981, at p. 1, citing to
definitions of grass roots lobbying in 56 Comp. Gen. 889 (1977) and
59 Comp. Gen. 115 (1979)). The Comptroller General in that decision
instructed an agency of the federal government to investigate a mass
mailing of material to the general public by a Department of HHS
grantee which urged readers to write their congressman for support of
a program, to determine "if any Federal funds were utilized either

357

CRS-5

directly, for such items as postage, stationary or employee salaries,
or indirectly, for such items as office machinery use, utilities etc."
in such mailings (Id_. at 3).

Although there are specific restrictions on contract or grant
recipients from certain agencies or departments, such as the ones
noted above, no statutory or appropriations provision of general
applicability to all federal contract or grant money has been found.

General Restrictions on Appropriated Funds

There is, as discussed briefly above, a general, overall restriction
on the use of "appropriated" funds for the purposes of lobbying the Congress.
The language of the criminal statutory provision, at 18 U.S.C. § 1913,
states broadly that "No part of the money appropriated by any enactment
of Congress shall ... be used directly or indirectly to pay for any
personal service, advertisement, telegram, telephone, letter, printed
or written matter or other device intended or designed to influence"
Members of Congress on legislation. However, the penalties provision
of this statute clearly demonstrates that the penalty for such conduct
applies only to "an officer or employee of the United States or of
any department or agency thereof". Thus, the penalties under this
statute for the use of federal funds for lobbying would not follow
such funds to apply to a private contractor or grantee. The statute
states as follows:

4/ A federal department and a private organization receiving funds from that
department were named as defendants in a civil suit brought to enjoin the expen-
diture of federal funds for lobbying under the criminal provision at 18 U.S.C.
sec. 1913. National Association for Community Development v. Hodgson , 356 F. Supp.
1399 (D.D.C. 1973). The court there held that despite the language of the criminal
statute making it applicable only to "an officer or employee of the United States",
the private organization may be named as a defendant in a civil suit brought under
the criminal provision. 356 F. Supp. at 1402-14Q4. That case, however, was expressly
overruled by the district court in its decision of NTEU v. Campbell , 482 F. Supp. 1122
(D.D.C. 1980), affirmed 654 F. 2d 784, 789-790 (D.C. Cir. 1981). See also (cont'd)

358

CRS-6

§ 1913. Lobbying with appropriated moneys

No part of the money appropriated by any enactment of Congress
shall, in the absence of express authorization by Congress, be used
directly or indirectly to pay for any personal service, advertisement,
telegram, telephone, letter, printed or written matter, or other
device, intended or designed to influence in any manner a Member of
Congress, to favor or oppose, by vote or otherwise, any legislation
or appropriation by Congress, whether before or after the introduc-
tion of any bill or resolution proposing such legislation or appro-
priation; but this shall not prevent officers or employees of the
United States or of its departments or agencies from communicating
to Members of Congress on the request of any Member or to Con-
gress, through the proper official channels, requests for legislation
or appropriations which they deem necessary for the efficient con-
duct of the public business. -

Whoever, being an officer or employee of the United States or of
any department or agency thereof, violates or attempts to violate
this section, shall be fined not more than S500 or imprisoned not
more than one year, or both; and after notice and hearing by the
superior officer vested with the power of removing him, shall be re-
moved from office or employment.
June 25, 1948, c. 645, 62 Stat. 792.

The legislative history and the subsequent interpretations of
the statutory provision at 18 U.S.C. § 1913 demonstrate that the
prohibition was intended to restrict federal officials from using
appropriations to engage in a publicity campaign directed at the
general public to stir the public to contact their Congressman
on a particular issue. The intent of the statute was stated by
the original sponsor of the provision, Congressman James W. Good
of Iowa, on the floor of the House on May 29, 1919:

4/ (cont'd) American Conservative Union v. Carter , No. 79-2495, slip
op. at 4-5 (D.D.C. December 14, 1979).

359

CRS-7

It is new legislation, but it will prohibit a practice
that has been indulged in so often, without regard to
what administration is in power — the practice of a
bureau chief or the head of a department writing
letters throughout the country, sending telegrams
throughout the country, for this organization for.
this man, for that company to write his Congressman,
to wire his Congressman, in behalf of this or that
legislation. The gentleman from Kentucky, Mr.
Sherley, former chairman of this committee, during
the closing days of the last Congress was greatly
worried because he had on his desk, thousands upon
thousands of telegrams that had been started right
here in Washington by some official wiring out for
people to wire Congressman Sherley for this
appropriation and for that. Now, they use the
contingent funds for that purpose, and I have no
doubt that the telegrams sent for that purpose cost
the Government more than §7,500. Now it was never
the intention of Congress to approrpiate money for
this purpose...." (58 Congressional Record 403, May 29,
1919).

Subsequent interpretations of this provision have also focused
on what has been called "executive branch lobbying" by federal officials
who use appropriations to sponsor publicity, propaganda, or "grassroots'*
type lobbying campaigns directed to the public that specifically urge
or are designed to have persons contact their Representative or
Senator in Congress on a particular issue. (See, for example
Hearings on Legislative Activities of Executive Agents, House Select
Committee on Lobbying Activities, 81st Congress, 2d Session, 1950;
letter opinion from Assistant Attorney General Henry J. Miller, 1962,
in 108 Congressional Record 8449-8451, May 15, 1962; letter opinion
from Assistant Attorney General Henry S. Peterson to Senators Humphrey

360

CRS-b

5/
and Muskie, July 19, 1973 ; see also American Public Gas Association v.

Federal Energy Administration , 408 F. Supp. 640 (D.D.C. 1976.)

In the case of contracts or grants, the statutory prohibition would

therefore apparently apply where a federal official uses appropriated

funds to contract with or provide a grant to a private party for

the performance of certain "lobbying" services or activities directed

at Congress for the federal agency or official. In such a case the

prohibition would be focused on the use of funds appropriated by

Congress for the agency, and the penalties for the improper use of >-

such funds would be applicable to the federal officials involved in

letting that contract or grant. However, where an agency lets a

contract or gives a grant to a private party for a legitimate,

non-lobbying purpose, such as for supplies, equipment, studies or other

services, and the private contractor or grantee on its own accord uses

the funds under its control, received from the government contract or

grant, for lobbying purposes, then it would appear that no misuse of

"appropriated" funds by a "federal officer or employee" would have

occurred under 18 U.S.C. § 1913.

The yearly approprations restriction, which is generally enacted

as Section 607(a) of the annual Tresury, Postal Service and General

Appropriations Act, and which prohibits the use of funds appropriated

_5/ Copy available from Congressional Research Service files.

bl The Treasury, Postal Service and General Governmental
Appropriations Act, 1982, H.R. 4121, 97th Cong., as incorporated
by reference in the continuing appropriations acts P.L. 97-51, 85,
92 and 161, sets out the "propaganda and publicity" restriction at
Sec. 608(a).

361

CRS-9

by Congress for "propaganda or publicity" purposes designed to influence
Members of Congress, is interpreted in a similar manner as the criminal
statute. (See 59 Comp. Gen. 115, 117 (1979): "Our construction of
section 607(a) was greatly influenced by the legislative history and
judicial construction of the anti-lobbying penal statute, 18 U.S.C.

§ 1913 "). That is, the provision, like § 1913, is interpreted

"to prohibit Government officials from making appeals to the public
to in turn contact their representative with respect to legislation,
but not to prohibit agency officials from expressing their views and
agency policy on pending legislative and appropriations matters."
(Id. at 118)(Emphasis added). The Comptroller General has explained:

In construing provisions such as section 607(a), it is important
to recognize that an agency has a legitimate interest in communicating
with the public and with legislators regarding its policies. It has
been our position that the prohibition of section 607(a) applies
primarily to expenditures involving direct appeals to the public
suggesting that they contact their representatives and indicate their
support of or opposition to pending legislation, i.e. , appeals to
members of the public for them in turn to urge their representatives
to vote In a particular manner. (General Accounting Office Memorandum,
B-130961.140 - O.M., September 10, 1976, p. 9; also Decision of the
Comptroller General, B-128938, July 12, 1976, p. 5; 56 C.G. 889;
Decision of the Comptroller General, B-16A497(5), August 10, 1977,
p. 3).

362

CRS-10

Under this appropriations restriction, similar to the criminal
statute, an agency could not do indirectly by contracting out what it
would be prohibited from doing directly by itself. An agency would
therefore be prohibited from contracting with or giving a grant to
a private firm or individual for supplying services or items which
are intended or designed to influence Members of Congress concerning
pending legislation, just as it would be prohibited from using
appropriations to pay for salaries of its own employees, or
equipment and supplies, for use in such activity.

It would appear to be an impractical and unreasonable interpretation
of the statutory prohibition or the appropriation restriction, however, to
attempt to follow the disbursement of all funds initially appropriated by
Congress to their ultimate destination to apply the lobbying prohibitions to
such funds since, in addition to contracts and grants, funds are
appropriated to federal agencies and then disbursed as salaries, welfare
payments, pensions, social security payments, disability payments and
numerous other distributions. Once these funds appropriated by
Congress to the agencies are so disbursed by the federal government and
are under the control of private individuals, it would appear that the
general prohibitions on lobbying with appropriated funds would no longer
apply unless specific restrictions to that end were included in a
particular contract or grant, or in a specific statute or appropriation.
The fact that specific statutory and appropriation restrictions have
been adopted limiting the use of particular contract or grant funds by
private recipients for lobbying purposes apparently evidences a congressional
determination that the existing law, absent such specific restrictions
on particular grant or contract money, would not otherwise reach the use
of such funds by private recipients.

363

cRs-n

Agency Responsibility for Contractor or Grantee Conduct

Although the general lobbying restrictions would not appear to
apply directly to the private parties receiving contract or grant
funds, questions may arise concerning an agency's responsibility
when a private individual or firm is contracted to perform, for
example, general informational services, and in the course of
performing its government contract uses contract funds to engage
in lobbying activities directed at federal legislation. In such
circumstances, the Comptroller General of the General Accounting
Office, who is empowered to oversee the use of appropriated
funds and to move to recover funds improperly used, might look to the
degree of agency involvement, control, or approval of such activity,
or the appearance of such approval or sponsorship, versus the
independent and private activity of a private contractor or grantee
of the federal government.

In decisions of the Comptroller General where private parties
under contract to the United States were alleged to have been involved
in lobbying activities, the Comptroller General appeared to look,
to determine if the use of federal contract money by the private
contractor implied governmental or federal agency support or
authorization for such activities. Thus, where a federal agency
and a private organization were undertaking a joint project such
that the United States Government would be identified with any
activity of the joint project participants, the Comptroller General
implied that a federal agency should take steps to assure that
federal monies made available by way of contracts to the private
organization in the joint project are not used for lobbying or propaganda

20-644 0—83 24

364

CRS-12

activities. In the Report of the Comptroller General of the United
States on "Problems With Publications Related to the Clinch River
Breeder Reactor Project", B-130961, January 6, 1978, the Comptroller
General suggested that in such circumstances, where the U.S. would
be identified with the joint activities, contractual provisions
barring such use of funds may be inserted in government contracts.
In the particular instance under consideration there, relating to the
Clinch River Breeder Reactor (CRBR) , however, such a solution could
not be implemented since only private funds were used in issuing the^
offending "propaganda" material. As noted in the Comptroller General
Report: "DOE has no contractual authority to stop their issuance
because, as allowed under the CRBR contracts, BRC paid for them out
of utility contributions and no federal funds were involved" (Id. at 2).

However, since, in the case of the Clinch River Breeder Reactor
project, a federal agency's involvement in an activity was to such an
extent that United States Government approval or sponsorship of project
related activities were implied, the Comptroller General suggested that,
even if no_ federal monies were involved in the offending promotional
activity, the agency take steps to assure the impartiality of the
material or to make a clear disclaimer on behalf of the government.
The Comptroller General stated specifically that where "the public
correctly views a joint DOE/industry RD&D project such as the CRBR as
a Government-sponsored project" and where "the public will tend to
identify this information with the Government and is likely to view it
as bearing the Government's seal of approval", then the federal agency
should "exercise some responsibility", even though public funds were
not used, "for seeing to it that the public and its elected representatives

365

CRS-13

receive balanced and objective information" from the industry participants
in the joint project concerning "project-related" informational material.
The Comptroller General suggested that where promotional literature by
the private organization in a joint project with the government does
not meet certain standards of fairness that a disclaimer should be
prominently displayed making it clear that "the publications are not
Government approved" (Id. at 2).

Similarly, in a 1976 opinion, the Comptroller General found that
where an agency is involved in funding by contract continuing activities
of a private organization for the government, and in performing those
activities the organization uses contract funds for propaganda or
lobbying activities that imply government sponsorship or endorsement,
then the agency has a responsibility to prevent such use of funds in
the future. (See Opinion of the Comptroller General of the United
States, B-128938, July 12, 1976). It is not clear under this opinion
whether the agency must assure that the private organization not use
any contract funds for lobbying purposes in the future, or whether
the agency may merely assure, by way of disclaimer, that the
activities of the organization are clearly identified and perceived
as those of the private party and not approved or endorsed by the
government. The opinion does state, however, that an appropriate
solution should "include" review of publications of the private
organization which are funded by government contracts and "the use
of appropriate disclaimer language" (Id. at 7), thus implying that
such disclaimer would satisfy the appropriations restriction.

This opinion dealt with a series of publications by a private
organization funded through contract agreements with the Environmental

366

CRS-14

Protection Agency under Purchase Order P5-01-2958-A. " One of the

issues of the newsletter published contained an article urging readers

to contact their congressman on a particular piece of legislation.

The Comptroller General's opinion stated:

It is likely that this article, if published directly
by EPA, would constitute a violation of section 607(a).
B-178648, September 21, 1973. The question here, however,
is whether the violation may be imputed to EPA where the
article was published and distributed, not by EPA, but by
the Foundation under an otherwise proper contract.

As noted above, there was no requirement for prior
approval by EPA of each newsletter. However, each newsletter
was required to be distributed to all Regional Public
Affairs Directors and to the Project Officer. Thus, EPA
knew, from its receipt of the October 1975 issue, that the
Foundation was using an approval statement implying official
Government sanction of the contents of the newsletter. In the
circumstances presented, we believe that EPA had a duty to
insure that its appropriation was not used in a manner that
would violate section 607(a) ....

Since similar newsletters have been or are being prepared
by other contractors under the Water Quality Information Exchange
Program, and since similar programs might be undertaken in the
future, EPA should establish adequate procedural safeguards
to assure that appropriated funds are not used in connection
with activities which contravene statutory prohibitions
against "publicity or propaganda." These procedures should
include, but are not necessarily limited to, prepublication
review by EPA of newsletters and the use of appropriate dis-
claimer language. (Id., at 6-7).

Thus, private individuals or organizations are apparently not
themselves constrained by existing statutory or appropriations
restrictions of general application from using funds under their
control, which were received by way of a government contract or grant,
for the purpose of lobbying, propaganda or publicity concerning

367

CRS-15

legislation pending before Congress. In some instances specific

statutory or appropriations language will restrict the use of particular

contract or grant money for lobbying purposes, such as in grants or

contracts from the Legal Services Corporation, and from the Departments

of Labor, HHS , and Education. All agencies of the federal government,

however, do not appear to be required as a matter of general policy

to police the use of all contract or procurement funds it lets out, or

to place within all contracts or grants clauses which restrict the

use of such funds to non-lobbying purposes by the private

recipient/contractors. However, the general appropriations restriction

may arguably, under certain circumstances, place a responsibility on a

federal agency concerning funds that it is letting out by contract

or grant on a continuing basis for certain services or activities

by private organizations. Such a situation may arguably arise where

an agency and a private party are involved in a continuing relationship

involving the federal funding of activities which indicate joint government

participation, or government approval, sponsorship or endorsement

of the particular activities. Where the federal agency is aware of

the propaganda or lobbying activies engaged in by the private contractor

or grantee with contract or grant funds under these circumstances,

and is aware of the implication of government approval, sponsorship,

or endorsement of such acitivites, but the agency continues to fund

such activities through tne contractor or grantee, then a violation

of the anti-propaganda appropriations restriction might arguably be

imputed to the federal agency for its "tacit approval" of the

continued use of its appropriations in this manner. In these

368

CRS-16

circumstances, ic is possible that the General Accounting Office might
require that an agency cease funding those activities, assure
that its funds will not be used by the contractor or grantee for
such purposes in the future, or assure by way of disclaimer that
the activities are perceived and understood to be merely those of
a private party which are not approved or endorsed by the United
States Government.

Legislative Attorney
American Law Division
October 1, 1982

APPENDIX 3.— STATEMENTS AND LETTERS REGARDING

OMB CIRCULAR A-122

Statement of the Honorable

JAMES M. JEFFORDS

COST PRINCIPLES FOR NONPROFIT ORGANIZATIONS

before the

Subcommittee on Legislation and National Security

March 1 , 1 983

On January 28, 1 98 3 , the Office of Management and Budget (OMB)
published in the Federal Registe r a proposed revision to Circular
A-122, "Cost Principles for Nonprofit Organizations." The same
revision would be applied to all federal contractors and grant
recipients .

This revision would severely and improperly curtail the ability
of non-profit and for-profit grantees and contractors to
communicate with their local, state and federal governments.

The OMB has announced its intention to withdraw and revise its
proposed revision. I applaud this decision, and hope that the
authors of the new proposal will take care to avoid the many
shortcomings of the original.

OMB makes essentially four arguments in support of the current
revision. First, it contends that the government should not
subsidize the political activities of private groups or
institutions. Second, it argues that the federal government must
not "tip the electoral process" by the use of its financial
power. Third, it maintains that the taxpayers must not be
forced, directly or indirectly, to contribute to the support of
an ideological cause that they may oppose. I am in basic
agreement with each of these arguments. However, to the best of
my knowledge, current law effectively and reasonably guards
against the use of federal dollars for these activities.

Finally, OMB argues that the federal government must not give the
appearance that it is taking sides on issues of public policy by
funding particular organizations. I do not find this argument
very compelling. It assumes either very little intelligence or a
lot of imagination in concluding that because an organization
receives federal funding, it will be thought to bear the federal
government's imprimatur. Indeed, OMB has consistently maintained
that federal awards are made solely on the basis of merit and
that they are blind to politics. I believe the public and
Congress can be trusted to discern that Planned Parenthood does
not speak for President Reagan.

The stated purpose of the revision, "to ensure that federal tax
dollars are not U3ed, directly or indirectly, for the support of
political advocacy," is not controversial. However, the proposed
revision would extend well beyond this reasonable standard to

(369)

370

place restrictions on the use of private dollars. This appears
to me to be the sort of federal interference that we should avoid
at all costs. If current restrictions are insufficient in
barring federal funds from being used in political activity, then
we should examine minor, technical corrections to remedy this
situation. We should not, however, embrace a wholesale crippling
of federal contractors and grantees' ability to communicate with
the various levels of government.

This is the likely outcome of the proposed revision. The
definition of prohibited "political advocacy" has been so
broadened as to include wholly legitimate activity on the part of
recipients of federal funds. Such activity has traditionally
been conducted with the knowledge and accord of Congress. This
comes as no surprise since the practical and technical expertise
of federal grant recipients is essential to the informed and
intelligent conduct of any Congressional office.

The proposed revision would bar not only traditionally restricted
lobbying and electoral activities, but would extend to
participation in all government processes — legislative,
administrative and judicial. Unsolicited communication with a
Congressional office by a nonprofit organization on virtually any
subject would put the organization's funding in jeopardy. Many
organizations could be expected to remain silent rather than run
the risk of disallowed costs or debarment.

Should this revision go forward in much the same form, it would
be to everyone's detriment. The failings of government -- local,
state and federal — would continue. Yet the people often most
strategically placed to witness these shortcomings would be
silenced. Are food banks able to meet the demand? We would not
know. Is the job training program living up to expectations? We
would not know that either.

While 0MB re
important to
activities o
degree of po
apparently a
government o
the people,
direction to
and directio
and guidance
organization
contracts .

cognizes

this dis
f governm
litical a

one-way
f f icials ,
explain t

the nati
n" would

cu rrent 1
s and cor

the First Amendmen
cussion, and while
ent in a democracy
dvocacy," the advo
street. 0MB point
elected and appoi
heir programs, and
on." But, I belie
materially suffer
y provided by the
porations receivin

t rights of Americans as
it acknowledges that "the
necessarily involve a

cacy of OMB's democracy is

s to the need for

nted, "to communicate with
provide leadership and

ve that this "leadership

without the information

wide range of

g federal grants and

To be fair, the proposed revision does not make political
activity impossible for federal grantees; just so difficult as to
make it very unlikely that any but the largest profit and
nonprofit organizations would continue to engage in "political
advocacy" as 0MB defines it. Only these organizations would be

371

able to set up the two distinct offices contemplated by the
revision. Smaller organizations would be unable to do so. I am
disturbed by the implications of this, as it seems to distort the
very process that OMB seeks to correct.

Finally, I would like to reiterate my hope that the drafters of
the new proposal will take a more circumscribed approach towards
this issue, neither overestimating the problem nor
underestimating the American people's intelligence. I do not
believe that the scope of this problem is nearly so large as the
reach of the currently proposed revision. Moreover, any problems
that may exist are not confined to either the profit or nonprofit
sectors. I hope and trust that any new revision will treat each
in an even-handed way, and that OMB will consult closely with
Congress in the crafting of the new revision.

372

STATEMENT OF CONGRESSMAN TED WEISS

I would like to commend Chairman Brooks for holding
this hearing on OMB ' s proposed revision to Circular A-122.
This hearing affords the Congress and the public an important
opportunity to examine the serious and far-reaching
consequences of OMB's determination to exclude non-profit
organizations from participating in all government decision-
making.

Although the stated intent of OMB's proposal is to

ensure that federal funds do not support political activity,

the effect would be to bar non-profit federal grantees

from participating in our democratic process, even if

such activity is funded exclusively by private resources.

The proposal defines political advocacy in terms so broad

and vague that almost any communication or involvement

with government or any effort to influence or inform the

public would be suspect and subject to OMB scrutiny.

Its most insidious application would be to impose sanctions

against non-profit organizations whose staff members are

"required" or "induced" (left undefined in the proposal)

to engage in political advocacy on their own time.

Essentially, this radical departure from current policy
— t
would force organizations to choose between receiving federal

grants and participating in government affairs, unless of

373

course, they are able to maintain two completely separate
operations. As we all know, few non-profit organizations
can afford this illogical, inefficient and unnecessary
duplication of staff and facilities.

OMB's proposal constitutes frightening evidence that
this Administration is ready to renounce its responsibility
to nurture government that is both open and responsive to
all Americans. This closed and exclusive posture jeopardizes
the integrity of our democratic political process and the
protections guaranteed the public by the First Amendment.
By predicating the receipt of federal grants and contracts
on the abdication of one's constitutionally protected rights,
OMB has unilaterally overstepped Congressional limitations
on political activities of tax-exempt organizations and
the use of federal dollars for lobbying and partisan activities.
Further, OMB has blatantly disregarded the dictates of
numerous Supreme Court decisions that carefully guard against
government infringement on First Amendment rights.

While OMB claims that its rule would neutralize the
process of awarding federal grants, in reality, the proposal would
establish double standards that are highly discriminatory.
Well established, financially secure non-profit organizations
might be able to restructure themselves in order to accommodate
OMB's requirements and still remain involved in public affairs.
However, it would be financially impossible for the vast
majority of non-profits, particularly those which represent
or provide services to the poor, minorities, and the politically
disadvantaged, to both fulfill grant obligations and engage

374

in political advocacy. The Supreme Court directly addressed
this question of equal protection, "The First Amendment's
protection, against governmental abridgment of free expression
cannot properly be made to depend on a person's financial
ability to engage in public discussion" ( Buckley v. Vale o) .
OMB's willingness to arbitrarily trample on the fundamental
rights of those unable to afford its new mandate places in
serious doubt this Administration's commitment to protecting
civil rights and furthering equal access to government for all
our citizens.

OMB's crusade to impede the workings of participatory
democracy severely threatens our ability to develop sound and
just public policy at the federal, state and local level.
It is precisely the free flow of ideas, the sharing of diverse
perspectives, and the communication of factual information that
help mitigate the possibility of unaccountable, harmful, and
ill-advised government decision-making. Non-profit
organizations, many of which provide direct government services
to their communities, often offer government vital information
on the efficiency and effectiveness of public programs. It is
simply unreasonable and impractical for the Administration,
particularly given the President's emphasis on private sector
initiatives, to insulate government from the insight and experience
of its non-profit grantees.

It is my understanding that as a result of the tremendous
public outcry, OMB has decided to revise and reissue its rec-
ommendations. May I suggest that OMB not waste its time and
energy; the proposal is fundamentally wrong and unconstitutional
and should be completely withdrawn. Rather than devising new
ways to rob citizens of their involvement with government,
OMB and the Administration should scrupulously work toward
fostering open rule, not only for the people, but by the people
as well.

375

American council on education

Division of Governmentol Relorions
March 7, 1983

The Honorable Jack Brooks, Chairman
Subcommittee on Legislation and

National Security
Committee on Government Operations
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

On behalf of the American Council on Education, an association
representing over 1,500 colleges and universities and other organizations in
higher education, and the associations listed below, we appreciate this oppor-
tunity to comment on the Administration's proposal to disallow costs related to
"political advocacy," which was the subject of hearings held by the Subcommit-
tee on March 1st. We ask that our comments be included in the record of those
hearings.

Our chief interest in this proposal is threefold. We are concerned
over the inconsistent reports of the intended scope of the proposed rules; we
object to the proposal on practical grounds; and we believe the proposal in its
current form has no statutory basis and is constitutionally suspect.

The Scope of the Proposed Regulations

The Office of Management and Budget published these proposed regula-
tions in the Federal Register of Monday, January 24, 1983, as a notice offering
interested parties an opportunity to comment on a proposed revision to 0MB
Circular A-122, "Cost Principles for Nonprofit Organizations." In their pres-
ent form, these principles are applicable to higher education associations but
not to colleges and universities themselves, whose federal grants and contracts
are governed by 0MB Circular A-21, "Cost Principles for Educational Institu-
tions." However, both the Summary and the Appendix to the notice indicate that
similar revisions are being proposed simultaneously for civilian and defense
contractors through appropriate actions of the Department of Defense, National
Aeronautics and Space Administration, and General Services Administration. One
of our associations has received a letter from the Deputy Under Secretary of
Defense (Acquisition Management) requesting comments on the proposed changes to
the various cost principles in the Defense Acquisition Regulations, which
govern defense contracts.

Many of the nation's colleges and universities are recipients of
contracts from the Department of Defense and have similar contractual rela-
tionships with major civilian departments and agencies. Therefore, even though
Circular A-122 does not currently apply to educational institutions, those
major colleges and universities which are civilian and defense contractors
would be subject to the provisions of the proposed revision if these were to
be incorporated across the board into the various procurement regulations.
Whether or not this will be done is uncertain at this time.

One Duponr Cirde. Woshingron. DC. 20036-1 193 (202) 833-4736

376

On the one hand, both OMB's Counsel for Policy Analysis and Law, who
was the principal author of the proposal, and the Director of its Financial
Management Division, who is the official 0MB point of contact, have advised
various representatives of the academic community that the proposal will not be
applied to colleges and universities. On the other hand, in response to ques-
tions regarding the Department of Defense's invitation for comment on behalf of
the academic community, the Director of the Defense Acquisition Regulatory
Council has stated unequivocally that the proposed rules are intended to be
applied across the board to all defense contractors, specifically including
colleges and universities as well as nonprofit and commercial organizations.
His counterpart in GSA's Federal Procurement Regulations Directorate, which
publishes the cost principles applicable to all contractors with the civilian
agencies of the government, is less certain of the intended scope of this pro-
posal, but "would not be suprised" if college and university contractors were
included.

In addition, the unsigned, undated question and answer sheet now
available from OMB's Office of Public Affairs, is internally inconsistent.
Question 7 asks, "Are the proposals applicable across the board, to contractors
as well as nonprofit grantees?" The answer given is, "Yes. OMB's proposed
changes in Circular A-122 apply to nonprofit organizations, while identical
proposals by Defense and GSA apply to contractors." That answer supports the
DOD contention that the proposal will apply to college and university contrac-
tors. But the next sentence of the answer says, "The proposals do not apply to
state and local governments or their contractors or grantees, or to hospitals,
universities or Indian tribes." Given the conflicting statements of officials
who administer federal grants and contracts, we believe that the exclusion of
colleges and universities from the scope of any proposed new strictures should
be stated by 0MB clearly and explicitly.

Practical Objections

No reasonable person could object to the purported purpose of the rule
proposed at 48 FR 3348, which is to ensure that federal tax dollars are not
used, directly or indirectly, for the support of "political advocacy." Nor
could any reasonable person object to the use of the statutory definition of
"influencing legislation" contained in the Internal Revenue Code of 1954 at
26 U.S.C. 4911 as the basis for the definition to be inserted in the proposed
cost principles. But the proposed rule greatly expands and distorts that
statutory definition, as well as the prohibition against the use of appropri-
ated funds to pay the expenses of "any activity designed to influence legisla-
tion or appropriations pending before Congress" contained in P.L. 95-480 and
subsequent appropriation acts of the Department of Health and Human Services.

Under the proposed rule, organizations and individuals could not write
to or speak with federal officials or legislators or file amicus curiae briefs
with the courts, even on their own time and with their own money, without
penalty. The rule would provide for a flat prohibition on federal reimburse-
ment for space, salaries, telephones, photocopying, meetings, conferences,

377

publications, and other operating costs of federal projects, if an organization
uses the same personnel or facilities to conduct "political advocacy" that it
uses to carry out work under federal grants and contracts. This would subject
individuals and organizations who communicated with federal officials or legis-
lators with the loss of federal grant and contract funds, or force them to
segregate completely all personnel and facilities receiving federal funds from
those involved in poltical advocacy. The latter alternative is unworkable.

In particular, it is not possible for the executive director of an
organization to divorce himself or herself from either the service or the
advocacy side of the operation. He or she must be responsible for all the
important pursuits of the organization. Thus, when the government comes to a
voluntary organization requesting help with certain public services, or when
the organization seeks to perform services, the government usually requires
that a portion of the chief executive's time be assigned to the project. This
is a measure of assurance that the project receives the highest level of atten-
tion. By the same token, if the organization seeks to express its views to an
executive department or agency, to the Congress, before a court, or even to the
public, the chief executive must naturally be involved in the formulation of
the organization's position and will usually sign any letters or statements
involved. It would be unrealistic and unfair to require the director to dis-
qualify himself or herself from either aspect of an organization's work.

This proposal would therefore have a significant and deleterious
impact on the participation of nonprofit organizations in the governmental
decision-making process. The breadth of the proposed regulation would cause
turmoil within the nonprofit sector, reducing its capacity to perform public
service functions effectively. Although we are sympathetic with OMB's stated
goal, it is our position that the proposed revision is excessive, unwieldy, and
unnecessarily disruptive of the legitimate functions of nonprofit organiza-
tions.

Moreover, were DOD, NASA, or GSA to incorporate the proposed rule
across the board into the principal procurement regulations, a university which
is a federal contractor would be penalized if its president in a commencement
address urged support for higher education, or in a community forum made a
statement in favor of a city bringing in a new industry. In addition, a uni-
versity would be unable to claim salary costs for activity directly applied to
a federal research project by a professor of microbiology who made a public
statement expressing concern about pollution of the environment. Apparently,
even if only an infinitesimal portion of the activity of a university president
or professor is devoted to making such statements, no part of his or her salary
could be charged to indirect cost recovery. This penalty assessed for partici-
pating in public discussion of issues would impede the exchange of ideas and
viewpoints that is vital to the public good.

In their current form, Circulars A-122 and A-21 provide a reasonable
set of procedures based on uniform and sound accounting principles for deter-
mining costs under federal grants and contracts. The proposed revisions would
undermine the procedures now in place and would violate the tenants of good
accounting by requiring inconsistent treatment of similar costs.

378

Statutory and Constitutional Objections

Although the Congress has sought from time to time to limit lobbying
actitivies by federal grantees, the higher education community is unaware of
any statutory basis for such a sweeping prohibition as that contained in these
proposed rules and in the above cited letter from the Deputy Under Secretary of
Defense. Further, we believe that the proposal in (b)(4) to expand the Inter-
nal Revenue Code's prohibition against influencing "any legislation" to include
influencing "governmental decisions," which is defined in (e)(2) as including
"any rulemaking, guidelines, policy statement, or other administrative deci-
sions of general applicability and future effect" would be directly contrary
to the provisions of Sec. 3517 of the Paperwork Reduction Act of 1980
(P.L. 96-511)(44 U.S.C. 3517).

In addition, prohibition of reimbursement for costs of nonpolitical
activities which are attributable to employees, equipment, or facilities also
involved in privately-funded political advocacy is constitutionally suspect.
Without repeating the legal arguments advanced in greater detail by other
organizations, we wish to state our belief that the proposed rule denying
contraqtors and grantees reimbursement of the costs of entirely proper, non-
political activities chills the exercise of First Amendment rights of such
groups to participate in the governmental process. Such a rule, if drawn at
all, must under a long line of cases be narrowly structured to protect a com-
pelling governmental interest. Surely, a minimal restriction could be devised,
if it be warranted at all, that would deny reimbursement for actual lobbying
activities without having the entire amount contaminated by the slightest
involvement in political advocacy.

The strictures already imposed on nonprofit organizations by the
Internal Revenue Code provide more than adequate safeguards against excessive
lobbying activities by such organizations. There has been no evidence adduced
to demonstrate that the requirements of colleges, universities, and other
charitable organizations to observe such regulations have been abused. Fur-
thermore, absent an explicit statutory basis, 0MB should not be permitted to
promulgate a rule such as that currently proposed.

Conclusion

On February 25th 0MB announced that the original proposed rule would,
in effect, be withdrawn, and that a revised proposal would be issued within two
weeks of that date, initiating another 45-day comment period. We intend to
make our concerns known to officials in 0MB and other affected agencies and
departments. We greatly appreciate this opportunity to bring our views to the
attention of the Subcommittee, and we stand ready to work with you to ensure
that any rules promulgated will achieve the desired results with a mimimum of
interference in the full exercise of the rights and legitimate functions of
nonprofit organizations, including our nation's colleges and universities.

379

This letter is sent on behalf of:

American Association of Community and Junior Colleges

American Association of State Colleges and Universities

American Council on Education

Association of American Colleges

Association of American Medical Colleges

Association of American Universities

Association of Urban Universities

Council of Graduate Schools in the United States

Council of Independent Colleges

Council on Governmental Relations

National Association of College and University Business Officers

National Association of Independent Colleges and Universities

National Association of Schools and Colleges of the United Methodist

Church
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators

Sincerely,

Sheldon Elliot Steinbach
General Counsel

cc: Members of the Subcommittee
SES:gfr

20-644 0—83 25

380

AMERICAN DENTAL ASSOCIATION

WASHINGTON OFFICE • SUITE 1004 / 1 101-1 7TH STREET, N.W. • WASHINGTON. D.C. 20036 • PHONE 202/833-3036

March 4, 1983

The Honorable Jack Brooks

Chairman

Subcommittee on Legislation and National Security

Committee on Government Operations

2157 Rayburn House Office Building

Washington, D.C. 20515

Dear Mr. Chairman:

I am writing to express the views of the American Dental Associatici
concerning OMB ' s proposed revisions to Circular A-122, Cost
Principles for Nonprofit Organizations. I request that these
comments be included in the hearing record of the subcommittee.

In short, the Association believes the proposed rule is unreason-
ably harsh and should be withdrawn. It would submit nonprofit
organizations such as the ADA to unnecessary restrictions in order
to achieve the goal of limiting federal funds from being used for
political advocacy. As proposed, the rule would restrict severely
the ability of partially federally-funded groups to participate
in the political process. It also provides extreme punitive action
for even technical violations.

The Association has specific objections to several basic provisions
included in the draft regulations:

• The new definition of political advocacy is unreasonably
broad. The prohibition of activities such as submitting
amicus curiae briefs and commenting on regulations
removes major avenues of redress from nonprofit groups.

• The new proposal departs from a system that would allow
legitimate costs to be funded under a grant or contract,
and substitutes the overly restrictive plan for absolute
separation of activities.

• Organizations would be restricted from participating in
cooperative efforts with other nonprofit groups due to
the fear of being tainted by their "political advocacy."

381

• The rule would prevent many organizations from

providing necessary information to legislators and
administrators.

We believe that adequate safeguards now exist to ensure that
only legitimate costs are paid for with federal funds. The
new proposal is therefore unnecessary. It would only serve to
prevent groups and individuals from exercising their First
Amendment right of free speech and the ability to petition their
government.

Thank you for allowing us this opportunity to present our views.

Jamas Kerrigan,
i Chairman
Council on Legislation

JK/jes

382

PUBLIC COMME.VI
SUBMITTED BY HELEN ARNOLD
TULSA, OKLAHOMA

Mr. Chairman and Members of the Government Operations Com-
mittee. I want to thank you for the opportunity to make
comments on the proposed OMB rules and regulations regarding
advocacy on issues and laws by non-profit organizations.

I am Helen Arnold, I am a former State Representative and
live in Tulsa, Oklahoma. I have been involved for many
years in citizen participation and with various non-profit
organizations in my community and state. It is from this
viewpoint that I wish to address what the Office of Budget
and Management proposes to do to non-profit organization.

I am sure all of you are keenly aware of the first amendment
to the Constitution of the United States but it never hurts
to reiterate those wonderful words: "Congress shall make no
law respecting an establishment of religion, or prohibiting
the free exercise thereof; or abridging the freedom of
speech, or of the press; or the right of the people peace-
ably to assemble, and to petition the Government for a
redress of grievances".

Today, more than any time in the history of our country, I
believe there is a concerted effort to repeal, by the fiat
of rules and regulations, this part of our Constitution. It

383

is no more evident than in the Executive Departments of the
present administration.

It is my belief that the agenda of some peoole in this
country is to silence those citizens who do no profess their
particular brand of political philosophy. I am determined
this will not happen and am asking you to commit yourself to
do the same.

When President Reagan took office he asked that the private
sector initiate a program of taking over or at least helping
the government provide services which he felt our government
could not longer afford, the private-public sector initia-
tive. Now, we find that if we do this we are not supposed
to comment on any law or propose any public policy changes
without being punished by withdrawal of the public support.

It is my understanding that these rules not only forbid
those organizations who receive federal funds to speak out
on federal issues but also go so far as to forbid comment on
local issues. Organizations which would be affected and
therefore their members would not be able to speak out in
one voice, would be Planned Parenthood, Senior Citizens,
Enviornmental Organizations, League of Women Voters, Organi-
zations that help the poor through commodity distribution,
Educational Institutions and Public Schools.

384

I can envision interpreting these rules so that if you
receive any indirect help such as being non-profit or gifts
are tax deductible that would be considered as receiving
federal monies and you could no longer advocate changes in
government policy or lav/. Could these rules and regulations
silence churches, farmers organizations, professional organ-
izations? I don't know but lets not take any chances.

I ask you to deny these rules and regulations. Uphold the
first amendment to the constitution and reaffirm the public
policy of our government that it is of the people, for the
people and by the people. Government is in trouble in this
country, many people feel it cannot be trusted and if these
A122 Review rules and regulations are put into effect their
doubts will be confirmed.

Thank you again for the opportunity to comment to the
committee .

385

%*M

BUSINESS ADVISORY COUNCIL ON FEDERAL REPORTS

1001 Connecticut Avenue. N.W., Suite 925. Washington. DC. 20036 • (202) 3311915

March 4, 1983

The Honorable Jack Brooks

Chairman, Subcommittee on Legislation

and National Security
Committee on Government Operations
Room B-373

Rayburn House Office Building
Washington, D.C. 20515

Dear Chairman Brooks:

BACFR emphatically states that issuance of the proposed revision
to Office of Management and Budget Circular A-122, "Cost Principles
for Nonprofit Organizations" would pose a serious threat to effective
implementation of the Paperwork Reduction Act of 1980. The proposed
revision of OMB Circular A-122, published in the Federal Register
January 24, and companion proposals of the Department of Defense,
General Services Administration and National Aeronautics and Space
Administration are absurd in the breadth of activities that would
newly be considered as "political advocacy."

To illustrate our concern. . .

for some years, BACFR and its members knowledgeable in
the complex field of federal procurement have labored
to pare back unnecessary and wasteful reporting and
recordkeeping mandates imposed on federal contractors.
These and other efforts to eliminate or reduce unnecessary
and unduly burdensome paperwork requirements are documented
in the BACFR 1982 Annual Report, copy enclosed for your
convenience .

The best way to accomplish these cost-cutting objectives is for
company personnel charged with completion of a particular information
requirement to provide commentary to initiating agencies, the Office
of Management and Budget, and (in connection with their information
resource management reviews) the General Accounting Office. Without
informed business comments - in large measure provided through
the efforts of BACFR - government officials have no concrete basis
for changing or deleting unwise, unintelligible and unnecessary
information collection proposals. One of the cornerstones of the
1980 Act is Section 3517 which requires the Director of OMB to
"provide interested agencies and persons early and meaningful
opportunity to comment ." (Emphasis added.)

386

Proposed OMB Circular A-122 together with the companion pronouncements
of the DOD, GSA and NASA, would significantly subvert the 1980
Act, as well as amplifying provisions in OMB Proposed Rule, 5 CFR
Part 1320, "Controlling Paperwork Burdens on the Public." (See,
for example, Sections 1320.12(e) and 1320.18; BACFR recommended
amendment of both sections to make them conform more closely with
Section 3517 of the 1980 Act.)

The proposed circular would disallow the full salary of a contractor's
employee who furnishes comments to policy-making officials in
Government - whether federal, state or local. Other costs would
also be disallowed. The effect, bayonetting of much informed
commentary to government, will seriously impair the exchange of
views contemplated under the 1980 Act. We submit this is detrimental
to the national interest and contrary to the continuously expressed
views of your Committee and the Congress.

Unless proposed Circular A-122 is permanently withdrawn, gargantuan
amounts of additional recordkeeping and, for sure, reporting demands
will spew forth, adding immense additional paperwork costs. The
crying need is to simplify and cut procurement and other red tape
for all sizes and types of businesses. There is a pressing need
to strengthen and expand the base of U.S. contractors. Proposed
A-122 will have a contrary, negative effect especially with respect
to smaller businesses. Among other things, companies would be
obliged to maintain and review a "diary" of contacts and conversations
participated in by their employees. We have consulted a number
of members in preparing this statement. It reflects the views
of large and small firms doing or seeking to do business with the
federal government.

We appreciate the unbroken attention that you as Chairman, the
members of your Committee and your staff devote to issues related
to the Paperwork Reduction Act. We respectfully request that this
statement be included in the printed record of your hearings.

Sincerely ,

David M. Marsh
Executive Director

DMM:amh

Enclosure

cc : The Honorable Frank Horton

387

center for community change

BOARD OF DIRECTORS

Rebecca Andrada

Chair

Peter B Edelman

Vice Chair

Raul Yzaguirre

Vice Chair

Burke Marshall

Chair/

Executive Committee

Michael Ansara

Charles Bannerman

Harriet Barlow

Julian Bond

John Carr

Abram Chayes

Gale Cincotta

Mike Clark

Cleveland Dennard

Douglas A. Fraser

Peter Goldmark. Jr.

Irma Gonzales

Ronald Grzywinski

Robert Larson

David Lizarraga

Margaret McNeill

Louis Nunez

Channing Phillips

Hugh B Price

David Ramage. Jr.

Edwin F. Shelley

Neil V. Sullivan

William Velasquez

Lucius Walker, Jr

Barbara Williams

Robert Woodson

March 2, 1983

The Honorable Jack Brooks

Chairman

Government Operations

U.S. House of Representatives

Room 2449, Rayburn Bldg.

Washington, D.C. 20515

Dear Congressman Brooks:

Enclosed are the comments of the Center for Community
Change on the proposed amendments by 0MB to its Circular
A-122. We hope they may be included as part of the record
connected with the hearings which your sub-committee held
yesterday.

These amendments are an effrontery both to the private
non-profit sector at a time when it is already under siege as
a result of the federal budget cutbacks and to the spirit of
the first amendment rights of all American institutions and
individuals.

We trust that you and your colleagues will do your best
to see that the attempts of the Office of Management and Budget
to impose additional restrictions on the operation of non-profit
organizations are completely stopped.

With best wishes.

OFFICERS

Pablo Eisenberg

President

Arthur Brazier

Vice President

Andrew Motl

Vice President

Othello Poulard

Vice President

Leonard Lesser

Secretary/

General Counsel

Sincerely^

Pablo Eisenberg
President

PE/psm
Enclosure

1000 WISCONSIN AVENUE, N.W.. WASHINGTON, D. C. 20007 • 202/338-6310

388

center for community change

BOARD OF DIRECTORS

ReDecca Andrade

Chair

Peler B Edetman

Vice Chair

February 25, 1903

Raul Yzaguirre

Vice Chair

Burke Marshall

Chair/

Executive Committee

Michael Ansara

Charles Bannerman

Harriet Barlow

Julian Bond

John Carr

Abram Chayes

Gale Cincotta

Mike Clark

Cleveland Dennard

Douglas A Fraser

Peter Goldmark. Jr.

Irma Gonzales

Ronald Grzywinski

Robert Larson

David Ltzarraga

Margaret McNeill

Louis Nunez

Channmg Phillips

Hugh B Price

David Ramage. Jr.

Edwin F Shelley

Neil V Sullivan

William Velasquez

Lucius Walker. Jr.

Barbara Wil'iams

Robert Woodson

OFFICERS

Pablo Eisenberg

President

Arthur Brazier

Vice President

Andrew Mon

Vice President

Othello Poulard

Vice President

Leonard Lesser

Secretary/

General Counsel

Mr. John Lordan, Chief
Financial Management Branch
Office of Management and Budget
Washington, D.C. 20503

Dear Mr. Lordan:

I am writing to express our strongest possible objections
to the proposed amendments to Circular A-122, "Cost Principles
for Nonprofit Organizations", which appeared in the Federal
Register on January 24, 1983.

It is not often that an agency or office of the executive
branch of the federal government publicly reccmmends regulations
or directives that are so sweepingly restrictive, so vague in
definition, so injurious to the prograns they are supposed to
benefit, and so insensitive to the First Amendment rights of
private sector institutions. The nature of the proposed amend-
ments casts serious doubts, and indeed a deep shadow, on the
motivation of those who were responsible for the draft regula-
tions as well as on their consistency with the President' s pub-
lic statements with regard to private sector initiatives and de-
regulation.

These proposed amendments do not offer a constructive
approach to documented problems of political advocacy on the
part of federal grantees and contractors. Rather, they appear
to be a punitive effort to restrict the legitimate advocacy
activities of private nonprofit organizations. They reflect at
best a lack of understanding about how nonprofit organizations
are organized and operate in the real world. They are a heavy-
handed attempt by the federal government to regulate and control
nonprofit organizations in a way tliat violates the very spirit
of public/private sector partnerships which the current Adminis-
tration has championed through the President' s Task Force on Pri-
vate Sector Initiatives and other efforts.

The proposed amendments in our view are deficient for a
number of reasons which are listed below.

1000 WISCONSIN AVENUE. N W . WASHINGTON, C. 20007 • 202/338-6310

389

1. Added Restrictions Are Unnecessary

Tax-exenpt nonprofit organizations are currently barred
from participating in partisan political activities. Under
the Internal Revenue Code, they are also prohibited frcm
carrying on substantial lobbying, except for those public
charities which elect to be subject to specific limits on
lobbying expenditures. In addition, most federal agencies
specifically prohibit the use of their grant funds for
lobbying and political activities. In short, protections
do exist which prevent federal funds fran being used to
support political or legislative advocacy.

What then is the problem which the amendments are designed
to correct? The sunmary of the proposed revised circular
suggests that there are serious abuses by federal grantees
in the use of federal funds for "political advocacy" . Yet
no specifics are given. No serious case is made to prove
this sweeping allegation. What kinds of inappropriate
activity are occurring? Where is the documentation? Who
specifically is complaining? What agencies or Congressmen
are concerned?

It is reasonable to expect that any radical change in
public policy would be the result of substantial failures
in the systan, a series of documented serious abuses and a
crescendo of public complaints demanding change. No such
events have occurred to justify the proposed policy shifts.

Such a lack of justification coupled with radical moves to
restrict First Anendment rights understandably leads to the
suspicion that the real goals of the amendments cannot be
justified on their merits, and that their purposes are in
fact punitive.

The Restrictions Limit Many Activities Which Are Essential
and Neither Political Nor Legislative

While using the broad term "political advocacy" to create
the sense that the directive is aimed at activities in
which groups use federal funds to engage in politics or
lobbying, the amendments in fact would restrict many
non-political and non-legislative activities. They would
restrict normal — in fact essential — participation by
nonprofits in the regulatory and government decision-making
processes.

390

Let me cite a few examples of activities which vvould be
effectively barred for the private nonprofit organi2ations
with which we work. These organizations are largely pri-
vately supported neighborhood and rural community groups
representing poor and minority people. Such groups
exemplify the best in American traditions of self-help and
private initiative, and have been cited by President Reagan
and leaders in the Administration for their value.

A low-inccme community group vhich receives Section 8 sub-
sidies to rehabilitate housing would be unable to testify
in public hearings and advocate that Ccmnunity Development
Block Grant funds be allocated for street improvements or
relocation assistance related to that rehab project.

A minority organization receiving funds from the Office of
Juvenile Justice and Delinquency Prevention under the Vio-
lent Juvenile Offender Program which was designed by this
Administration would not be permitted to meet with the
police department and discuss changes in policy which would
lead to more effective methods for street patrols or
handling juvenile offenders or getting greater cooperation
frcm victims and witnesses to crimes.

A community group receiving assistance frcm ACTION under
the Foster Grandparents program — which Mrs. Reagan has
strongly backed — could not meet with local school
officials to advocate any changes in after-hours programs
or the use of school facilities.

A Head Start program could not participate in state hear-
ings on the use of Education Block Grant funds. A commun-
ity health center could not participate in any discussion
of state usage of Maternal and Child Health or Preventive
Health Block Grant funds.

These are essential activities. They are essential in
terms of First Amendment rights, the health and indepen-
dence of the private sector frcm the heavy hand of govern-
ment, and the job to be done to improve opportunities and
living conditions for low income Americans.

A broad attack on these essential rights and activities,
couched in vague and atibiguous language, and subject to
arbitrary interpretation or selective enforcement, presents
a great danger to the nation.

391

3. The Restrictions Would Increase Costs far Efcinprofits, Pri-
vate Philanthropy, and the Federal Government

Nonprofit organizations are already suffering fron severe
financial problems. The state of the economy, the cutbacks
in federal domestic support for the nonprofit sector, and
the inability of private philanthropy to fill the gap have
greatly reduced the funds available to nonprofits.

These new restrictions would increase costs for nonprofits
which refused to choose between accepting federal funds and
exercising their rights to carry out essential and Constitu-
tional lv-guaranteed rights. Such groups vould have to
establish a second parallel structure, with a separate
staff, separate equipment, and a separate office. Large
profit-making entities might be able to afford this duplica-
tion and increased costs, but nonprofits — especially
small nonprofits — could not.

Philanthropy vould be burdened with these costs as wall.
If their grantees were hit by the inflationary impact of
these new regulations — an ironic result considering the
emphasis of the Vice President' s task force on deregulation
— philanthropists in corporations and foundations would
have to increase their giving or see the impact of their
funding undercut.

Finally, government itself would feel this inflationary
impact. It, too, would be faced with having to cover
higher costs or see services reduced.

4. The Directive Violates the Spirit of Public/Private Partner-
ships

The Administration has often stressed partnerships with the
private sector. Such partnerships necessarily include the
mixing of public and private money to achieve mutual goals.

Yet the directive would gravely restrict the rights of the
private sector. It would create an imbalance, undercutting
the independence of the private sector while strengthening
the hand of the federal government. This one of the
several ironies in. the proposed amendments.

392

These Radical, Restrictive Changes in Policy Would Be In-
stituted by Fiat, Without Legislative Authorization

The Administration has often criticized federal agencies
which have issued regulations which go far beyond the in-
tent of Congress and, in effect, make law without involve-
ment of the legislative branch.

These proposed amendments are the epitome of such abuses.
They impose burdensome, restrictive, and costly new regula-
tions. They would have enormous consequences for the func-
tioning of the nonprofit sector. They raise fundamental
Constitutional questions. And they were issued without Con-
gressional hearings, public debate, or legislation.

It is absolutely essential that the proposed amendments be
withdrawn inniediately and in their entirety. It is ocm-
pletely inappropriate for CMB to issue such regulations or,
indeed, to initiate any new regulations which involve major
substantive policy changes without appropriate Congression-
al involvement.

Yours-sincerely ,

Yburs-sj.

Pablo Eisenberg
President

AHM/PE/ysg

393

g^/>*S The College Board

888 Sevenlh Avenue. New York. New York 10106
(212)582-6210

OMice o) the President

March 4, 1983

Mr. John J. Lordan
Chief, Financial Management Branch
Office of Management and Budget
Washington, D.C. 20S03

Dear Mr. Lordan:

In accordance with your January 24, 1983 Federal Register notice of
proposed revision to Circular A-122 "Cost Principles for Nonprofit
Organizations," I appreciate the opportunity to comment on this im-
portant matter.

The College Board as a national nonprofit educational association with
a membership of 2,500 colleges, universities, cchools and educational
associations would be affected by the proposed circular and is deeply
concerned about the appropriateness promulgating such a rule. We oppose
the adoption of the proposed revision and respectfully recommend that
the Office of Management and Budget withdraw its proposal for several
reasons.

Circular A-122 would expand the definition of "political advocacy" for
nonprofit organizations such as the College Board far beyond the scope
of definitions currently in effect. The proposed definition would be
so pervasive that it would dramatically restrict the extent to which
nonprofit organizations receiving Federal monies could participate in
the public policy-making process. In operation, proposed A-122 would
have the effect not only of restricting the use of government funds for
political advocacy purposes but also would restrict the use of non-
federal funds.

The proposed revision, especially regarding the definition of political
advocacy, appears to be excessive in several respects. First, the re-
vision is proposed without documentation of substantial abuse in use of
public funds for political advocacy by nonprofit organizations. Addi-
tionally, current law and the Internal Revenue Code contain restrictions
on lobbying and political activity which adequately protect the public's
interest.

A nonprofit educalional association serving sludenls. schools, and colleges through programs designed to expand educational opportunity

394

Finally, the Office of Management and Budget may lack the statutory
authority required to impose the proposed restrictions and such re-
strictions may be in violation of First Amendment constitutional
rights.

A-122 as proposed would significantly hinder a nonprofit organization's
ability to deliver service and thereby would not work in the public's
interest.

We urge you to consider withdrawal of Circular A-122.

Sincerely,

Georg
President

GHH:lt

395

COUNCIL OF DEFENSE AND SPACE INDUSTRY ASSOCIATIONS (CODSIA)

1612 K Street, N.W., Suite 1100
WASHINGTON, DC. 20006

(202) 331-8050

March 1 , 1983

Mr. John J. Lordan

Chief, Financial Management Branch
Office of Management and Budget
Washington, D. C. 20503

Dear Mr. Lordan:

The undersigned member associations of the Council of Defense and
Space Industry Associations (CODSIA) take this opportunity to
comment on the 0MB Release (0MB 84-10 dated January 20, dealing
with "political advocacy," and the documents which implement the
stated changes; i.e., the revisions of Circular A-122, dealing
with non-profit organizations and the proposed changes in con-
tracting regulations announced by the major contracting agencies.

CODSIA was formed in 1961 by industry associations having common
interests in the defense and space fields. The Department of
Defense encouraged the formation of this organization as a vehicle
for obtaining broad industry reactions to new or revised regula-
tions and similar matters. CODSIA is composed of six
associations, the National Security Industrial Association, the
Aerospace Industries Association, the Motor Vehicle Manufacturers
Association, the Shipbuilders Council of America, the Electronic
Industries Association, and the Amercian Electronics Association.
They represent approximately 3,000 large and small member firms
across the nation.

On March 1, 1983, in hearings before the Subcommittee on Legisla-
tion and National Security of the House Government Operations
Committee, the 0MB, represented by Mr. Joseph Wright, acknowledged
substantive deficiencies in the proposed revisions as originally
presented and the need for revision. In this regard, senior mem-
bers of the Subcommittee strongly urged that any further action in
this matter be after judicious study of the alleged problem fol-
lowed by appropriate public hearings and participation by all
affected parties.

20-644 0-83 26

396

It is our considered opinion that the proposed changes in the long
term will adversely impact the national security, and further are
unjustified by evidence or need and produce an unreasonable, and
punitive result. We submit that the proposal should be withdrawn
because:

o The definition of political advocacy is vague and
broad, overreaches existing law, and places an
unreasonable burden on contractors.

o The broad and vague definition of political advo-
cacy would imply that most marketing activities
are included in the category of disallowed costs.

o The definition of political advocacy improperly
includes communication with any legislative body
or government official, including the state and
local levels. Thus, a local plant manager's
effort to solve a tax problem with the city
council would automatically result in his annual
salary being disallowed as a cost of doing
business .

o Contacts with Rule-Making and Policy-Making offi-
cials are not political advocacy and the defini-
tion of political advocacy would erroneously
restrict or preclude communications needed by the
government .

o It impedes essential communications required be-
tween government and industry, and punishes those
who do business with the government.

o It establishes a "contamination" (all or none)
test of political involvement that is imprac-
tical, discriminatory and unfair. By attempting
to create a physical wall of separation between
the activities of political advocacy and the
activities of performing a contract it would
unjustly enrich the government by denying reim-
bursement for any of the work of an employee, 991
of whose time had been productively spent in
support of a contract and 1$ in political
advocacy.

o A contractor is penalized by being required to
physically separate the personnel, building and
equipment used in contract work from those
employed in any degree for political advocacy.

397

The far-reaching concepts of cost disallowance
are punitive in nature and unjustifiably restrict
the exercise of constitutionally guaranteed
rights. The concepts will inhibit advocacy by
business and trade groups to the advantage of
those interests, many foreign and domestic, which
oppose them in the political arena.

It conflicts with the 1962 Revenue Act which
allows most lobbying and other political advocacy
on matters of direct ^interest to a taxpayer to be
deductible business expenses. The Revenue Act
recognizes the necessity for business to communi-
cate with legislators.

It imposes limitations on uses of appropriated
funds beyond those imposed by the DoD and other
Appropriations Acts.

The many fundamental differences between "for-
profit" and "non-profit" organizations preclude
the fair and reasonable application to both of
the same cost principles.

It will have a devastating effect on smaller
businesses, since they are especially vulnerable
to absorbing costs of doing business with the
government .

These concepts are directly in

conflict with

major policy statements

contained in the Federal

Procurement Policy Decl

aration

of the Office of

Federal Procurement Pol

icy Act

Amendments of 1979

(P.L. 96-83), establish.

ed to promote economy,

efficiency and effectiveness in

procurement of

property and services.

They are also directly in

conflict with President

Reagan '

s Executive Order

12352 of March 17, 1982

, entitl

ed "Federal

Procurement Reforms."

Finally ,

the Reagan

administration's goal o

f deregi

ilation and the

associated need for add

itional

communication is

being abandoned by this

propose

il of "overregula-

tion ."

If adopted, these changes would materially affect the national
security interests of the United States, and would increase costs
of defense programs by reducing the free flow of information
necessary to the interests of the Unitd States, reducing compe-
tition, discouraging participation in the defense mobilization
base, and limiting capital available for investment in product-
ivity enhancement.

398

The attached statement sets forth detailed comments on the pro-
posal as initially presented. Although we have additional areas
of objection that could be discussed, we respectfully urge that on
the basis of our statement the proposal be withdrawn and that no
further action on revisions to A-122 or the cost principles be
taken by OMB, DoD, GSA, or NASA.

Sincerely,-
Wallace H. Robinson, Jr. ' Karl G. Harr, Jr.

Wallace H
President

National Security Industrial
Assn .

Karl G. Harr, Jr.

President

Aerospace Industries Association

L d a n Br i n 1 Av_
:or Vehicle Manufacturers/
Assn .

Edwin M--/.:-e«-d—

President

Shipbuilders Council of America

•^

/£/.C • -ff£e.'-mi,-L-

Jean A. Caffiaux

Vice President

Electronic Industries Assn.

Kenneth C. 0. Hagerf
American Electronics Assn.

399

COUNClt. OF DEFENSE AND SPACE INDUSTRY ASSOCIATIONS (CODSIA)

'. 1612 K Street, N.W., Suite 1100
WASHINGTON, D.C. 20006

•

(202)331-8050

Statement on

proposed Revision to OMB Circular i\_i22

and the proposed changes in Contracting Regulations

This statement provides the response of the designated Associations of
the Council of Defense and Space Industry A^sbciat i ons (CODSIA) to the
proposed revisions to Circular A-122 and cost priri c ipi es affecting all
government contractors.

CODSIA is composed of six associations, the National Security In-
dustrial Association, the Aerospace Industries Ass oc i a tion, the Motor
Vehicle Manufacturers Association, the Shipbuilders Council of America,
the Electronic Industries Association, and the Auifc,-i can Electronics
Association. They represent approximately 3,000 ) 3r ge and small member
firms across the nation, all having common interests i n defense and
space fields. CODSIA was formed in 1964 as a vehi i_ e f or providing to
government broad industry reaction to new or revised regulations.

The definition of political advocacy is based upon an erroneous
premise. A-122 and a letter on this subject recently received from the
office of the Deputy Under Secretary of Defense sta tej "The definition
of political advocacy is derived generally from th g internal Revenue
Code, 26 USC 1911." Under that Section of the Cod e an excise tax is
imposed on certain public charities which make exo„ 5S expenditures for
lobbying activities during the tax year. This section was promulgated
exclusively for application to public charitable O|-g an izations • To use
this section as a basis for the definition of "political advocacy"
applicable to government contractors, business leases, or trade
associations is beyond comprehension. Trade associations are governed
by Section 501(c)(6) and have their own definition f lobbying under
the IRC. Government contractors cannot logically De subjected to
regulations on political advocacy intended for the conduct of public
charities. Applying this faulty logic, the concepts f political
advocacy under the OMB proposal produce impracticable, vague, and
punitive conclusions. In addition, the several cc, jr t decisions cited
as the basis for the proposed circular bear no reliance t o the
activities of for-profit government contractors.

E xecutive Summary

The member associations of CODSIA submit that the proposal should be
withdrawn in its entirety because:

o The definition of political advocacy is vague and
broad, overreaches existing law, and plb ce s an un-
reasonable burden on contractors.

o The broad and vague definition of politi oa i advo-
cacy would imply that most marketing activities are
included in the category of disallowed '- os ts.

400

The definition of political advocacy improperly
includes communication with any legislative body or
government official, including the state and local
levels. Thus, a local plant manager's effort to
solve a tax problem with the city council would
automatically result in his annual salary being
disallowed as a cost of doing business.

Contacts with Rule-Making and Policy-Making offi-
cials are not political advocacy and the definition
of political advocacy would erroneously restrict or
preclude communications needed by the government.

It impedes essential communications required be-
tween government and industry, and punishes those
who do business with the government .

It establishes a "contamination" (all or none) test
of political involvement that is impractical, dis-
criminatory and unfair. By attempting to create a
physical wall of separation between the activities
of political advocacy and the activities of per-
forming a contract it would unjustly enrich the
government by denying reimbur sement for any of the
work of an employee, 99% of whose time had been
productively spent in support of a contract and 1%
in political advocacy.

A contractor is penalized by being required to''-
physically separate the personnel, building and
equipment used in contract work from those employed
in any degree for political advocacy.

The far-reaching concepts of cost disallowance are
punitive in nature and unjustifiably restrict the
exercise of constitutionally guaranteed rights.
These concepts will inhibit advocacy by business
and trade groups to the advantage of those in-
terests, many foreign and domestic, which oppose
them in the political arena.

It conflicts with the 1962 Revenue Act which allows
most lobbying and other political advocacy on
matters of direct interest to a taxpayer to be de-
ductible business expenses. The Revenue Act rec-
ognizes the necessity for business to communicate
with legislators.

It imposes limitations on uses of appropriated .
funds beyond those imposed by the DoD and other
Appropriations Acts.

The many fundamental differences between "for-pro-
fit" and "non-profit" organizations preclude the

401

fair and reasonable application to both of the same
cost principles.

o It will have a devastating effect on smaller busi-
nesses, since they are especially vulnerable to ab-
sorbing costs of doing business with the govern-
ment .

o These concepts are directly in conflict with major
policy statements contained in the Federal Pro-
curement Policy Declaration of the Office of
Federal Procurement Policy Act Amendments of 1979
(P.L. 96-83)i established to promote economy, effi-
ciency and effectiveness in procurement of property
and services. They are also directly in conflict
with President Reagan's Executive Order 12352 of
March 17, 1982, entitled "Federal Procurement
Reforms." Finally, the Reagan administration's
goal of deregulation and the associated need for
additional communication is being abandoned by this
proposal of "overr egulation . "

The cost of any activity undertaken must be included in the price
charged by the business for its goods and services. If the cost is not
recovered in pricing contracts to which it must be allocated, profit
degradation will result. The activity will necessarily be impaired and
the uses for profit such as investment in improved productivity, plant
modernization, and competitive parity curtailed.

Cost principles should recognize as allowable all normal and necessary
costs of doing business. This was recognized by the Executive Office
of the President, the Office of Management and Budget and the Office of
Federal Procurement Policy less than a year ago in the Proposa l for a
Unif orm Federal Procurem e nt Syst em at Page 25:

"Present cost principles will be reviewed with the ob-
jective of allowing all normal and necessary costs of
doing business. The cost principles will recognize that
the disallowance of necessary costs erodes contractor
profits. This in turn reduces competition. The only
unallowable costs should be those which are against
public policy."

Thus, the underlying issues are whether the activities being labeled
"political advocacy" are contrary to public policy, and, if so, how
those costs are to be defined and identified.

1 . COSTS NECESSARY TO THE US UA L_ CON DUCT OF BUSI NESS SHOULD NOT BE
CONSIDERED CONTRARY TO PUBLIC POLICY.

The proposed definition of "political advocacy" is extremely vague and
broad and encompasses many activities not previously considered "lob-
bying". This new definition overreaches both the letter and intent of
existing law and places an unreasonable and punitive burden on com-

402

panies doing business with the government.

1 . 1 Hos t Element s o f "Politica l Advocacy" are Norma l Cost s of D oing
Business and Should be Allowable if the y ar e tax Deductible .

Communications between Government and industry are essential to the
proper conduct of business both by Government and by industry. Even
where these communications are intended to influence opinions, they
often convey needed information.

In the report of the Investigations Subcommittee of the House Committee
on Armed Services dated December 30, 1982, Congressman Samuel S.
Stratton stated forcefully the need to protect Government/Industry
exchange of information and opinion: •

Without information provided by the Air Force and the
Department of Defense, as well as the contractors in-
volved, Congress would be unable to make an informed
choice .

To impair this flow of technical information, by either
the Department of Defense or the contractors, . . . will
dsrnage the national interest and conflict with the ad-
monitions of the Founding Fathers.

DoD has stated that discussions by Federal agencies and their contrac-
tors on such important matters of mutual interest occur routinely
throughout the government and are necessary for the very functioning of
government. ■ ~~-

No regulation should interfere with the exchange of necessary
information between the Government and those who would do business with
the Government. The proposed regulation grossly interferes with this
exchange and creates a disincentive and penalty for doing business with
the Government.

The subject of what costs of the Government/Business information ex-
change should be recognized as necessary business costs has been the
subject of considerable debate for many years. Congress and the IRS
have answered this question in the Revenue Act of 1962 and the imple-
menting Treasury regulations.

In that Act, Congress recognized that in order for a business to
function efficiently in today's economy, it must be able to monitor
legislative developments carefully, include thera in its plans for doing
business, and communicate its views on such legislation to Congress and
state governments. That Revenue Act created a specific deduction for
political advocacy in Section 162(e) of the Internal Revenue Code and
eliminated the confusion caused by then-existing regul ations. which
sought to distinguish between regular business expenses and legislative
efforts.

The proposed modifications would reverse the progress made in the 1962
Revenue Act by requiring government contractors to attempt the con-

403

fusing and burdensome task of determining what corporate resources can
be devoted to any form of government relations without risking dis-
allowance of the entire cost of those resources under Federal con-
tracts. This is precisely what Congress sought to avoid in the 1962
Revenue Act. Congress said:

"It is also desirable that taxpayers who have informa-
tion bearing on the impact of present laws, or proposed
legislation, on their trades or businesses not be d is-
cou ra ged in making this information available to Members ■
of Congress or legislators at other levels of Govern-
ment." (Emphasis Edded.) 1962 U.S. Code Con g . & Ad.
News at 3325. House Report No. 1W7, 57th Congress, 2nd
Session, pg. 17, Senate Committee on Finance, Senate
Report No. 1881, 87th Congress, 2nd Session, pg. 22.

The Treasury Department regulations provide that legislation is deemed
to be of direct interest to a taxpayer if the legislation is of such a
nature that it will, or may reasonably be expected to, affect the trade
or business of the taxpayer. If legislation has such a relationship to
a trade or business that the expenses of any appearance or communica-
tion in connection with it meet the ordinary and necessary test then
such legislation usually meets the "direct interest" test.

The following are pertinent examples of legislation recognized in
Treasury Department regulations which meet the direct interest test so
as to be deductible as a business expense:

(a) Legislation which would increase or decrease
the taxes applicable to the trade or business.

(b) Legislation which would increase or decrease
the operating costs or earnings of the trade
or business.

(d) Legislation which uould favorably or adversely
affect business of a competitor so as to
affect the taxpayer's competitive position.

Congress also established in the 1962 Revenue Act reasonable limita-
tions on the deductibility of lobbying expenses, such as:

"(2) L imitation . — The provisions of paragraph (1) shall
not be construed as allowing the deduction of any amount
paid or incurred (whether by way of contribution, gift
or otherwise) —

"(A) for participation in, or intervention in, any
political campaign on behalf of any candidate for
public office, or

404

"(B) in connection with any attempt to influence
the general public, or segments thereof, with
respect to legislative matters, elections, or
referendums." IRC sec . 1 62(e) (2)

There is indeed a difference between activities to inform Congress on
legislative matters of direct interest to a contractor's well-being and
the grass roots activities and political campaigning referred to in
Internal Revenue Code, Section 162(e)(2). If the Administration de-
sires to disallow the latter costs and still' not choke off appropriate
communications with the Congress, it would be well advised to follow
the IRS regulations which were adopted under the Revenue Act of 1962.

1 .2 Regulat ions Defining "Politic al Advocacy" Should Not Ircpo.e
Limita tions Beyon d Those Di rect ed by fJ o ngr ess .

Congress has stated in the FY'83 DoD Appropriations Act that:

"I.'one of the funds made available by this Act shall be
used in any way directly, or indirectly, to influence
congressional action on any legislation or appropriation
matters pending before Congress." (PL-97-377 Sect.
796).

Congress has thus prohibited the Defense Department from spending
appropriated funds to hire anyone to lobby the Congress or to organize
the general public in grassroots lobbying. It has imposed no other
restriction on the use of appropriated funds.

These congressional restrictions are the broadest which should be
imposed upon cost allowability by 0MB or DoD. The symmetry between the
Internal Revenue Code limits on business deductions and the limits
imposed on Defense Department expenditures is no coincidence. However,
most of the broad categories of costs to be disallowed under the pro-
posed changes cannot be found within the restrictions imposed by
Congress. The revisions would. include in "lobbying" many forms of
government-industry interactions which have never before been included
in any statute or regulation governing lobbying.

The best example is the Federal Regulation of Lobbying Act, 2 U.S.C.
sec. 261 et. seq. (1916). That statute requires lobbyists to regis-
ter, identify their constituents, and report quarterly on their activi-
ties and expenditures. Lobbyists are defined to be persons paid to in-
fluence the federal legislative process. 2 U.S.C. sec. 267. No one
seeking to influence any action of the executive branch is covered, re-
gardless of whether the relevant executive branch action is rule
making, formulation of policy or licensing. No person or business is
recognized to be "lobbying" by virtue of membership in a trade asso-
ciation. The law thus defines lobbying in accord with its commonly
accepted meaning, that is, direct communication with members of
Congress on pending or proposed federal legislation. U.S. v. Harri s ,
3^7 U.S. 612 (1951).

405

While Congress

has bai

lobbying of the U.S.
not barred payment fo

local official
intended to do

s, or t;
so, it

the use of app
Congressional

ropriat
policy

gulations. In summar
tions of allowability

problem which

may res

THE "ON/OFF" TEST
CLOSELY-REGULATED

rred the Department of Defense from funding
Congress either directly or indirectly, it has
r contact with the executive branch, state or
rade association memberships. Had Congress

would have enacted far broader restrictions on
ed funds. It having declined to do so,
should not be overreached by the proposed re-
y, Congress has already spoken on these limita-

and dealt appropriately and effectively with any
ult from "political advocacy".

OF POLIT ICAL I NVOLVMENT IS UNREASONABLE IN TODAY'S
BUSINESS WORLD"

The stated

inte

physical an

d or

ties consid

ered

for performing

state and 1

ocal

proach to b

efor

nature of activ

identified

in a*

tion may be

req

ges in the

many

fecting his

bus

nt of the dr
ganizational

to be polit
a contract.

law preclud
e-the-fact s
ities consid
dvance of ne
uired . ' No c

environment
iness .

afters of the pr

"walls of separ

ical advocacy an

The constantly
es this simplist
eparation of act
ered to be polit
ed nor can the i
ontractor can an
al, contractual,

oposed
ation"
d the a
evolvi n
i c "bin
ivities
ical ad
ndividu
ticipat
or tax

changes
between
ctivitie
g nature
ary" or

The e

vocacy c

als whos

e the fr

regulat

is to create
the activi-
s required
of Federal,
"on/off" ap-
xtent and
an not be
e participa-
equent chan-
ions af-

The argument that "physical separation" could preclude audit sur-
veillance and after-the-fact questioning is completely mistaken. The
opportunities for audit and investigation throughout the many activi-
ties of contractors impacted by these proposals will be multiplied.
Every aspect of contract performance and contractor activity will be
open to investigation for some taint of "political advocacy" which
could disallow the entire annual cost of the people, equipment and
facilities involved in the performance of the government contracts.

The proposal states that the salary costs of individuals are unallow-
able if the work of such individuals includes any amount of political
advocacy. Other cost principles set aside only the applicable portion
of the cost of activities deemed unallowable. This proposal is all-
encompassing, so that any activity declared unallowable renders the
whole activity unallowable and the entire salary cost of the individual
is unallowable for the year.

An example of the effect of this proposal would be the denial of any
reimbursement to a contractor for the work of an employee, 99% of whose
time had been productively spent in support of a contract and 1* in
political advocacy. The government would be unjustly enriched by the
value of his work applied to the government contract, while the con-
tractor is penalized for having participated in business related
political activities.

The penalty that a contractor incurs when he fails to physically
separate the personnel, building, and equipment used in grant or
contract work from those employed in whole or in part for political

406

advocacy is unconscionable. The government's interest in not sub-
sidizing political advocacy cannot possibly justify the penalty of
disallowance of clearly allocable, reasonable, and otherwise allowable
costs of doing business incurred under a contract or grant and unre-
lated to the political advocacy activities.

Consider the result, under the proposed rules, of a corporation using
its expensive computer resources to do work under a government contract
as well as corporate work such as keeping payroll records and issuing
checks. If the company has a Political Action Committee (PAC), and
uses a payroll deduction plan to fund it automatically, the entire
capital and non-capital costs of the computer would be disallowed, even
though its "political" use takes only the smallest fraction of its
productive time. m

Neither the

5% rul

justif

iable

basis

fundamental

rul es

year s .

Many

contra

ision/

company offi

pany o

ffices are e

poration or

indivi

ing, M

anuf actur ing

nance ,

Accounting ,

fairs ,

etc.

The Ch

cutive

Vice

Pr esid

sident

s are

requir

business, includin

their

fiduciary du

execut

ives can abs

posal

or assign th

stand

the duties a

punitive to

go fur

makes

one air trip

annual

cost

of the

e nor any other nr
and must simply be
of government cost
ctors have a separ
ces, and a Washing
stablished to mana
dual facility; i.e
, Quality Assuranc
Legal, Contracts
ief Executive Offi
ent, and the Divis
ed to be involved
g political advoca
ty to their shareh
tain from politica
eir duty to others
nd obligations of
ther and state tha
on a corporate ai
plane and his sal

bitrary percentage rule has any
penal in nature. It disregards the
principles developed over many
ate corporate offipe, several div-
ton office. The corporate and com-
ge the -entire operation of the cor-

Industrial Relations, Engineer-
e, Scientists, Procurement, Fi-
and Pricing, Marketing, Public Af-
cer (CEO), the President, the Exe-
ion General Managers/Company Pre-
in every aspect of the company's
cy. If they are not, they violate
olders. To suggest that high-level
1 advocacy as defined in the pro-
, is to admit one does not under-
a business executive. It is simply
t if a CEO or any other employee
rcraft for political advocacy, the
ary is unallowable.

Under current procedure which is simple, understood, and effective, if
unallowable costs are incurred, the Corporation/Company or division, or
Washington office facility can then segregate unallowable expenses and
continue to allocate properly allowable costs. Existing law and regula-
tion (cost accounting standards) adequately protect the Government's
interest. There is no justification for application of a "contamina-
tion" test to any one individual or any category of costs.

Under t
an empl
formanc
vocacy
er-empl
tionshi
1 itical
inducem
activ it
the law

he "contamination" principle, disallowing the annual salary of
oyee whose time may be devoted exclusively to the direct per-
e of a contract because he was induced to contribute to an ad-
association, such as a PAC, is an attempt to regulate employ-
oyee relationships through cost disallowance which has no rela-
p whatsoever to whether any government funds are involved in po-

advocacy. If an employee is subjected to an inappropriate
ent with respect to contributions or other infringements on his
ies away from the job, he already has adequate remedies under

407

3. POLITI CAL ADVOCACY -SHOULD EXCLUDE MARKETING, _ALL_ LEGISLATIVE
LlTlSON, I NTERACT ION WITH STATE AND LOCA'L GOVERNMENTS, AND
FULE-MAKING AND PO LICY M AKI'NG. ■

The total function of marketing should be :.pecif ically excluded from
the definitions of political advocacy. Marketing is an attempt to sell
a product or service to a customer, which includes applying or making a
proposal or bid in connection with a grant, contract, unsolicited pro-
posal, or other agreement, or providing information in connection with
such proposal or bid, or providing a regular dialogue and exchange of
data and information for the purposes of developing solutions to future
requirements, and identifying new requirements that can be satisfied by
existing product lines. Clearly, marketing bears no relationship to
political advocacy. ' • .

In addition, actions or decisions related to the administration of the
specific gr?nt, contract or agreement involved, actions necessary for
the delivery of the product to the government, and actions benefiting
the safety and general welfare of the community involved with the
specific grant, contract or agreement could fall within the broad and
vague definition of political advocacy.

The vague definition of political advocacy could be interpreted to in-
clude legislative liaison. Normal legislative liaison activities such
as the gathering of information on pending legislation, status and in-
terpretations of legislation, analysis of the effect of pending legis-
lation, and attendance at hearings should not result in unallowable
costs. The government contract cost principles should be consistent
with existing legislation on this subject. It is noted that Senator
Pryor, who has in the past proposed that lobbying costs be prohibited,
excluded legislative liaison activities from his definition of
lobbying .

"While lobbying may be conceived as somewhat broad,
certain activities are excluded from the definition,
such as the following: communications made in response
to a request from a Member of Congress; passive atten-
dance at legislative proceedings, that is, attendance
without engaging is (sic) prohibited lobbying activi-
ties; nonpaid communications made through public infor-
mation channels; and inquiries made regarding the exis-
tence or status of legislation. We believe that all
necessary business expenses recognized unier the tax
code should be allowed except those precluded by the
Appropriations Act." (Congressional Record, Nov. 30,
1981 , S 14112).

In the proposal "political advocacy" includes activity that attempts to
influence governmental decisions through communication with any member
of a legislative body or with any governmental official or em_ploy_ee_ who
may participate in the decision-making process, and includes activity
at the state and local levels of government. There are innumerable
activities conducted by companies of our member associations at the

408

federal, state and local level which have as their desired result the
more efficient and less costly operation of the plant or offices in
that jurisdiction. Those activities are normal, reasonable actions
which a prudent businessman must take in the conduct of his business
and in fact are required in the performance of contracts with the
government.

In every state, contractor representatives communicate with and testify
before state legislative committees, municipal councils, zoning boards,

these activities would be subject to classification as political advo-
cacy. "

The incidence of these activities and the identity of the persons and
facilities involved cannot be predicted nor can they be limited to a
"separated" activity.

The total effect of such activities is to improve the overall effici-
ency of the plant or office and minimize its overall cost of operation,
the benefit of which is passed on to the government and other customers
in accordance with the cost allocation system for those activities.
For the government to require and promote on the one hand efficiencies
and cost control and on the other hand to deny the allowability of
costs to achieve them is incongruous and self-defeating.

Finally, suppliers to the Federal Government necessarily must interface
with "agencies of the Executive Branch of government. Many ,-gencies of
the Executive Branch are not subject to the Administrative Procedures
Act and are not required to give notice and a period of time to comment
on any proposed rule or policy. With this in mind, for the proposal to
make unallowable costs of participating in any rule-making or
policy-making activity that is not requested is totally unreasonable.
Without a direct connection to the influencing of elections or
political fund raising activities, none of such activities with the
Executive Branch relating to matters of direct interest should be
considered political advocacy.

i| . SMALLER BUSINESSES WILL BE PENALIZED HOST HARSHLY

We believe that the proposed regulations would have a particularly
devastating effect on small businesses substantially involved in gov-
ernment procurement. For many businesses, the salary of individuals
engaged in "political advocacy" could exceed the profits of the entire
organization. It is not enough to say that they may "choose" not to
participate in advocacy as some "advocacy" is necessary to the conduct
of any business. They may simply be precluded from doing business with
the Government.

5 . THE SEPARATION OF PRIVATE AND PUBLIC FUNDS

We regard as invalid the premise that federal funds are used by con-

409

trsctors for political advocacy. Money spent by federal contractors
has never been treated as a federal expenditure. The separation of
public and private funds is an essential element of government procure-
ment law which is premised on use of the private sector as the most
economical, efficient and effective neans for obtaining goods and ser-
vices. The importance of preserving this separation was noted recently
by the Department of Defense in denying General Accounting office
allegations that DoD payments to contractors were illpgal because of
limitations in an appropriations Act on the use of appropriated . funds
for certain kinds of political activity. The DoD stated that payments
were made for goods and services and not for" activities, even though
the payments were calculated by reference to costs incurred by the
contractors. Federal funds paid to a contractor do not retain their
identity when spent by a contractor.

6. PARTICIPATION IN TRADE ASSOCIATIONS SHOULD JOT_RESULT _IN DISALLOWED
COSTS

The Executive agencies would be denied the use of hundreds of technical
experts who now work problems as members of working committees of the
various trade associations because their activities may be "contamina-
ted" under the vague definition of political advocacy. It is apparent
that this proposal actually disregards the value received by the Exec-
utive agencies under the present allowability principles.

7. THE PROPOSAL CONFLICTS WITH OFFICE OF FED ERAL PROCUREMENT P OLICY
ACT AM ENDMENTS OF 1979, PRESIDENT REAGAN'S EXECUTIVE ORD ER" 12352 ,
A ND THE ADMINISTRATION'S" GOAL OF DEREGULATION.

When the proposed concepts are applied to Federal procurement, they
would directly impair seven out of the twelve Policy Statements
contained in the "Declaration of Policy" enacted into law under the
Office of Federal Procurment Policy Act Amendments of 1979, P.L. 96-83 •
They would impede the basic policy of Congress to promote economy,
efficiency and effectiveness in the procurement of property and
services, as follows:

1. They would decrease rather than promote full compe-
tition in procurement.

2. They would impair rather than improve the quality,
efficiency, economy, and per forinance of Government
procurement organizations and personnel.

3. They would add rather than eliminate inconsistencies
in procurement laws, regulations, directives and
other laws, etc., relating to procurement.

4. They would add enormous complexity rather than
greater simplicity throughout procurement.

5. They would impede rather than promote economy, effi-
ciency, and effectiveness throughout Government pro-
curement organizations and operations.

6. They would greatly increase instead of minimizing
disruptive effects of Government procurement on
particular industries, areas, of occupations.

7. And finally, they would destroy rather than promote

410

fair dealing and equitable relationships smong the
parties in Government contracting.

The proposed concepts would also impair rather than promote the
"Federal Procurement Reforms" required by President Reagan's Executive
Order 12352 of March 17, 1982. Specifically, they would conflict with
the portion of Section 1(a), which directs the establishment of pro-
grams to reduce administrative costs and other burdens imposed through
the procurement function on the Federal Government and the private
sector. In addition, it would directly conflict with the provisions of
Section 1(a), which direct that private sector views on needed changes
to regulations, paperwork, solicitation provisions, contract clauses,
certifications, and other administrative procedures should be solici-
ted. The concepts are also directly in conflict with President
Reagan's direction in Section 1(d) to establish a number of criteria
which would enhance effective competition. Among these criteria are
providing greater latitude for private sector response in the process
of establishing and describing Government needs.

The Reagan administration's goal of deregulation is coromendable: How-
ever, this proposal will stifle, or at least restrict, the additional
communication that is required under any deregulation program. This
proposal is "overr egulation" at its worst and is contrary to the admin-
istration's policy of reducing administrative burdens and regulatory
control .

8. THE PROPOSAL MAY PRES ENT AN UNCONSTITUTIONAL PRECLUSION OF

POLITICA L ACTIVITY , AND IS THERE FORE I TSELF CONTRARY TO PUBLIC
POLICY . " - - — ; ; ■•

The proposal, notwithstanding the Summary Statements and Questions and
Answers accompanying the 0MB release, gives rise to several constitu-
tional issues. True, the proposal purports to not prohibit political
advocacy; however, its far-reaching and punitive concepts of cost dis-
allowance have that very effect. For example, the proposed revisions
will inhibit political advocacy by businesses and trade groups to the
advantage of many interests, both foreign and domestic, which oppose
them in the political arena. The rights of businesses under both the
First and Fifth Amendments are thus placed in jeopardy.

Companies which do not do business with the government, as well as many
public interest groups and all labor unions, suffer no inhibition to
their ability to recover the costs of political advocacy from their
customers, members or clients. Foreign governments or others who
attempt to influence U.S. legislation and policy will suffer no such
inhibition. Government contractors, on the other hand, will, in
effect, pay a substantial "penalty" on their political advocacy by
being unable to apportion any part of otherwise allowable costs to
government contracts. This "penalty" on political advocacy is a res-
triction on a businessman's First Amendment right to be heard publicly.

Vorse still, the regulations effectively preclude businesses from
engaging in certain political activities. Despite the stated intent
not to preclude business from lobbying, the denial of cost recovery

411

will frequently have that effect. It is submitted that the new
regulations will impose an unconstitutional burden upon businesses'
ability to associate and to petition their Federal, state and local

governments .

CONCLUSION

We do not believe there
applying the cost princi
organizations to "for pr
identical and specifical
organizations and the na
regulation show congress
activities by providing
specific 1 imitations on
thus should be recognize
government .

is any justification or deiaonstr ated need for
pies applicable to non-profit and tax exempt
ofit" firms. The regulations currently are not
ly recognize, the fundamental differences in the
ture of their activities. Existing law and
ional recognition of the need for advocacy
tax deductibility for their costs and imposing
them. They are not against public policy and
d as allowable costs of doing business with the

The

cost

inte

able

only

any

wher

fit.

stit

proposed

principl

rests of

pr actic

appl icab

corapensat

e virtual

The pro

utionally

revi sions
es materia
the United
ally impos
le to crim
ion for th
ly all of
posal over
guarantee

to Circular
lly and adv
States, ar
sible to ad
inal activi
e cost of p
the cost is
reaches con
d rights.

A-122 and th
ersely affect
e unreasonabl
minister, and
ties. They d
ersonnel and

incurred for
gressional ac
Th e r e f o r e , it

e government contract
the national security

e, inherently inequit-
provide for penalties

eprive contractors of

equipment in situations
the Government's bene-

tion and restricts con-
should be withdrawn.

Sincerely ,

Robinson, Jr

Wallace H
President
National Security
Ass

/J/fa-l .

Industrial

Karl G. Harr, Jr.

President

Aerospace Industries Association

Edwip—M.-yW-fo-o-d

Presiden^

Shipbuilders Council of America

M7k

Jean A. Caffiaux

Vice President

Electronic Industries Assn.

Kenneth C. 0. Hager"ty- // I
American Electronics Assn.

20-644 0—83-

-27

412

TESTIMONY BY JOHN HOUSTON, EXECUTIVE DIRECTOR, THE FAIRNESS COMMITTEE

My name is John Charles Houston. I am an attorney, and the Executive
Director of the Fairness Committee Against Tax Funded Politics.
The Fairness Committee is designed to serve as a focal point for the
problems created by the abuse of federal dollars, whether done under color
of law or not, to engage in political advocacy.

lsy way of reference, the National Urban Institute estimates that over
100,000 non-profit corporations receive federal grants and contracts each
year which total over $40 billion dollars. A fair rule of thumb is that
one third of those costs go to pay overhead, which would be around $14.3
billion dollars. Approximately half of the overhead costs would be used
for payroll or about $7.15 billion a year. The other half of that $14 billion
goes to pay for copying machines, rent, computers, cars, gasoline, etc.

While there have been a number of prohibitions passed into law, for-
bidding the use of federal funds for lobbying by bureaucrats with federal
funds, they do not address themselves to the florid political environment
that has grown up in the abuse of federal funds. The abuse goes well
beyond anything imagined by the Congress when it passed the current law in
Sec. 1913, and includes using the job trainees to campaign for Presidential,
Congressional, and local candidates, armed with computer printouts and
assigned neighborhoods to work, orchestrated with the finesse of the best
political machines. Other abuses include using federal funds to organize
public employees into unions, funding grass roots training centers like the
Midwest Academy, founded by the radical Saul Alinsky, and the Laurel Springs
Institute, founded by Tom Hayden and Jane Fonda.

Another example of pervasive abuse for political purposes occurs at
this moment in Los Angeles, where one of the nation's largest so-called

413

'poverty agencies' is presently $36 million dollars short in unaccounted
funds, and has been active in a wide variety of political endeavors, paid
for by the federal tax payers. Yet, even as we speak, they may be asking
for more federal grants and contracts, because there is no amount of waste,
fraud, abuse, or political activism which under current law makes one ineli-
gible to ask for more money to waste. To understand this issue, we have to
draw back from the horror of individual cases, and focus on the structure
of federal grants and contracts, which not only acknowledge this abuse, but
in many ways encourage it.

There are various ways to characterize the ostensible and real purposes
for which Federal funds are requested. Most generally, the purpose is des-
cribed breezily as for services to some supposedly disadvantaged sector of
the population, whether the target is the homeless, women, those with cold
homes, or the poor in general. However, members of Congress need to under-
stand that there is an historical difference between charities, which pro-
vide services to specific individuals, and political parties or factions,
which lobby the recipients of these services.

What we are talking about today is most often a hybrid of the traditional
ward heeler and block captain of the political precincts, using the language
of charities. It is our Committee's position that if tax-exempt organizations
wish to provide services which are subsidized by the Federal taxpayer, then
they should desist from engaging in political activity ostensibly in behalf
of those they claim to serve.

It took almost 100 years of the spoils system in the country before a
Civil Service System erected a barrier between those making funding decisions
and rank and file bureaucrats. Civil Service has become a hallowed legal
protection against political exploitation by the politicians against underlings.

It took almost another sixty years for the Hatch Act to be passed to

414

protect welfare recipients, and career bureaucrats from political exploita-
tion for campaign purposes above and beyond the Civil Service laws. The
unsightliness of welfare recipients being corralled on election day by
sitting members of Congress and their campaigners was rejected in favor of
the principle that personal political benefit should not flow from one's
ability to confer benefits on the public. To do otherwise, is to sanction
wholesale blackmail of the poor, the disadvantaged, the helpless, civil
servants, and the voters.

The vast increase in Federal expenditures in the last twenty years
gives rise to a situation analogous to both of these abuses of the past.
In conferring forty billion dollars a year on tax-exempt organizations,
oomes enormous political influence which has and is now being wielded on
behalf of very specific and highly motivated para-political organizations.
Recipients of taxpayer largesse are being corralled just as the welfare
recipients were in the 1930 's. They are being used for political duties
not only on election day, but as a standing army for whatever demonstrations,
lobbying, or letter writing that may be required.

These abuses are well-documented in the press, and have become notorious.
Because many members of Congress have benefitted from these activities,
there has been no rush to regulate the political behavior of these organi-
zations. But the time is long past when any fair-minded person can ignore
the corrosive effects of maintaining the status quo.

The Federal funding of political activists occurs through specific
programs tailored for a particular constituency. The fact that policy and
political advocates are receiving funding is not incidental, it is the pri-
mary purpose of the legislation. Payments are made for pre-determined poli-
tical activity. In fact, any services provided to target populations are
incidental to the overtly political nature of these activities which the

415

fund recipients are pursuing. No one but Congress can be responsible for
such a result, and the public is increasingly aware of the nature of these
programs. In fact, the public seems to be ahead of the Congress on this
issue.

One program which is tailored to subsidize a particular brand of poli-
cies is the Women ' s Education Equity Act Program (WEEA) . WEEA is a perfect
example of one of these programs. On the subject of WEEA, I would like to
make several points.

WEEA grants a total of about $6 million dollars a year, not large by
federal standards. But too large for anyone who believes that the Federal
Government has no business reaching into the market place of ideas and
subsidizing the political activity of any faction in the ideological spectrum.
A great deal of this money is going to fund the political activities of its
own advisory board members and their organizations. The WEEA advisory coun-
cil recently rejected a perfunctory conflict of interest resolution because
it would interfere with present funding of some of its board members.

A mere glance at the funding practices of WEEA demonstrates beyond any
question that the real purpose of this program is to subsidize radical femi-
nists. The paltry amount of "services and books" actually procurred could
have been bought for a small fraction of the cost spent by WEEA. What we
have here is a jobs program for radical feminists who are feeding at the
Federal trough. Leaf raking for ideologues, as it were.

I would encourage this committee to devote further time to this and
other federal programs which were designed and created to subsidize propa-
ganda for use on the American public. The public finds this practice
repugnant, and would violently object to it if they understood it to be a
standard practice in such programs.

iiaving once established a comprehensive need for reform in this area,

416

I want to make some comments on the OMB Regulations A- 122. These regs
have moved the political dialogue to an important new stage of discussing
how to curb these abuses, not whether or not they are important enough to
take up the time of the Congress or the White House. And once we understand
that these abuses are pervasive, the need for comprehensive reform becomes
necessary. For too long, each agency has had its own standards of political
morality, ranging from none at all, to the whims of the present inhabitants.
These regulations will require uniform standards which do not presently exist.

Secondly, the regs establish a cost principle which few will argue with
in principle, who are not presently feeding at the federal trough. That is,
the allocated cost of personnel, and overhead which are involved in political
behavior in the full blown scene which I have described will not be paid
for by the taxpayer. Just like interest and advertising costs, grantees
and contractors will no longer be able to bill the feds for their political
behavior. My view is that political parties ought not be able to use public
money in this fashion because of their inherent political biases, and the
direct subsidy that results from being able to do so. By comparison, paro-
chial schools for a long time have been forbidden to accept public subsidy
for fear of creating government subsidy to their beliefs. If that doctrine
holds Constitutional water in that case, I can see no reason why the Demo-
cratic or Republican party, or any other party or faction ought to be able
to receive federal funds. Such money is clearly tainted just as money to
a parochial school would be.

Thirdly, the regulations do not do enough to discourage bureaucrats
who are tempted to bend and break the rules from subsidizing or buying poli-
tical support for their pet programs through grants and contracts. Such
conflicts of interest are rife, and are not addressed by these regulations.
I think your constituents would be appalled to learn that millions of dollars

417

a year are given by bureaucrats with explicit instructions to the grantees
to lobby other public officials, including the bureaucrats themselves.
S. 3122 and H. R. 7299, introduced by Sen. Jepsen and Congressman Jeffries
respectively, in the last Congress provided criminal penalties for both
parties in such a transaction, and for persistant and willful abuse of fed-
eral funds for proscribed political behavior. The bill also requires a self
certification process which if violated, is the basis of disbarment.

Fourth, the opponents of these regs have failed in their attempt to
characterize them as an interferrence in their organizations' First Amend-
ment rights. In fact, the opposite is true. These regs will prevent the
First Amendment rights of the public frcm being impeded. It is the public
that is paying for the political activity at issue here. And frequently,
it is political activity which the public is not supportive of. And even
if the public were supportive of some of it, the First Amendment is a two
way street. It forbids the majority from imposing its beliefs on the minority
through public subsidies to religion or political factions. That abuses
have been accepted as routine in Washington, is merely a testimony to how
out of tune Washington is with the rest of the Country.

The regulations proposed by OMB are merely a starting point for cleaning
out a political mess that has persisted for a number of years. But as the
Supreme Court has observed, no mistake or indescretion can become hallowed
by time if it violates the basic precepts of the Constitution. These abuses,
much like their predecessors before the Civil Service System and the Hatch
Act, are the tiresome but necessary duty of all those who believe that govern-
ment cannot be either impartial or representative, until it is freed fron
the petty and fractious corruption which is self-evident to even the most
determined ostrich.

418

FEDERATION OF PROTESTANT WELFARE AGENCIES. INC.

FPWA

281 PARK AVENUE SOUTH / NEW YORK. NY. 10010 / (212) 777-4*00

Mr, Hiram Q Blae*

Sot. ■ - N Bozortty

Mrs l- Cedeno

Biu< MeCowan

Mrs Jan,- >J Robbing

j r-enry Sm'tti

Vice- ''residents

Mrs Pame<a L Lenns

Secretary

W.inam S Niven

Treasurer

Oa^O A Gardner
Assurafl' T -eaiurer

BOARD OF DtflECTOfiS

R Palmer 3a»ei. Jr

"e^e M Barren

Mrs Margaret M Boyd

Samuel T Bumeson

Henry Oantngton Jr

Mrs Howand 0av>5

Richa'd a Debs

Charles R D<c*unson

James R Oumpson

Mrs Barbara T weeO Estill

Rev Can E F'emister

Conrad A Ford

James Foster

Beriram F Frencn

Marshall M Green

ev Thomas P Gnssom Jr

Harry 6 Heimsley

George Henning

Mrs Jui<a Honor

laweii iberg

Mrs J Morton ifams

Benietey Jennson Jr

Rev Micnae< ■> Kendall

Edward S Lewis

Josepn F McDonald

John fl McG.niey

VU.ii.arr> F May

Mrs Palnoa G Monsey

M-s Judy Guer.n de Neco

Mrs James T Parkinson 111

Edward A Pereli

Ralph F'ew Peters

RoOen L Popper

Richardson Pratt. Jr

Mrs Barta/a Scon Preisfcei

Dongid M Roberts

Mrs John E Roosevefl

Chanes E Sa<Ltman

Caroiyr E Setlow

Mrs Phoebe R Sianton

Henry Tang

Freoenc* C Tanner

Mrs Barta'a A Tnacher

Hon Phillip B Thurston

Jote iChequil T orres

Rev jonn 0a»>0 Warren

Royal 3 Whrtrng

THE COUNCIL

Frar.-.is L Blawer

Mrs j CampoeJi Burton

Mrs EdW 1 F Ch.niunO

Mrs A Gooowin Cooke

Mrs Rooen DeVeccrti

Hon Florence M Ke+tey

Leonard T Scully

WViinarr = Tracer

Mrs Juan T Tripp*

Mrs Arrtflnci.se Wa*er

Testimony of the
FEDERATION OF PROTEST7OT WELFARE AGENCIES
with respect to the
Office of Management and Budget's
Proposed Revision of Circular A-122

March 4, 1983

The Federation of Protestant Welfare Agencies, the only
federation of Protestant and nonsectarian human services
agencies in the nation, is a planning, consulting and coor-
dinating body of approximately 250 member agencies in the
New York City netropolitan area. The Federation and its
member agencies annually serve more than one million needful
people of all ages, races and faiths.

The Federation welcomes the opportunity to testify on
the Office of Management and Budget's proposed revisions to
Circular A-122 which would establish harsh new rules to
govern the advocacy efforts of nonprofit recipients of
Federal funds. We strongly oppose the proposed revisions.
We do so not because we believe that public money should be
used for advocacy- Rather, our opposition results from our
belief that existing statutes and regulations provide suffi-
cient safeguards to insure that Federal funds are used solely
for the purposes mandated by Congress. GMB's proposals will
not provide a single new safeguard or a single more effective
enforcement procedure to effectuate this purpose. They will
succeed only in making it extremely difficult and prohibitive-
ly expensive for nonprofit recipients of Federal funds to
participate in the political process under any circumstances.

Before discussing our specific objections, the Federation
would like to note that our advocacy efforts will not be

419

directly affected by the proposed revisions. Our budget includes no Federal
funds. We present testimony because of our strong conviction that nonprofit
organizations which do accept Federal funds make an invaluable contribution
to the formulation of constructive and informed public policy. We know this
to be true for government programs in the human services area.

Because the Federation is aware of the expertise of those engaged in
providing direct services to the poor, the young and the elderly, we have
encouraged our member agencies to participate in the political process. And,
while we encourage participation, we also provide detailed information on the
legal responsibilities of nonprofits who elect to engage in advocacy. We do
not view such participation as adversarial or detrimental to the public good,
a view which appears to be inherent in CMB's understanding of advocacy, but
as a crucial ingredient in the formulation of sound public policy.

The revisions to Circular A-122 are objectionable on a substantial
number of counts. Rather than touch on all these points, the Federation
would like to focus on three specific issues, these are:

a. that the definition of "political advocacy" in the proposed
revisions is so broad and so vague that it bars those with
the most expertise in specific policy areas from contributing
to sound public decisions in such areas;

b. that the proposed revisions would make it extremely expensive
and difficult for nonprofits to engage in any advocacy,
despite the fact that only nonfederal funds are used for this
purpose, and;

c. that the legality and constitutionality of the proposed re-
visions are questionable.

DEFINITION OF POLITICAL ADVOCACY

The OMB claims that its definition of "political advocacy" is based
primarily on the definition used by the Internal Revenue Service to regulate
advocacy in the nonprofit sector with certain minor "modifications". This
explanation is totally misleading. The modifications provided by OMB would
include in the term political advocacy a vast number of activities hereto-
fore unaddressed by the Federal Government.

Particularly troublesome is defining "political advocacy" to include
initiating communication with elected officials and their staffs and with
government officers and employees who participate in the decision making
process. If adopted, this definition would preclude those with the most
expertise in a particular area from using their knowledge to contribute to
the formulation of public policy. Therefore, the Federation believes that
OMB's proposals would be self-defeating for the Federal Government, and thus,
of course, for the public as well.

Federation member agencies engaged in providing day care, for example,
could not communicate with Federal, State and local government officials

420

about perceived problems in day care programs. Equally, our agencies which
provide meals to the elderly would be stopped from suggesting more efficient
ways to provide food. Our examples, of course, could continue ad infinitum.
The important point is that 0MB is proposing a system which would mute those
willing and able to make important contributions to providing quality services
to those in need.

The prohibition on communication found in the 0MB 's definition of
"political advocacy" becomes far more disturbing when understood in conjunc-
tion with its definition of "governmental decision". The latter term applies
to the formulation of rules and regulations, the development of program
guidelines, the fixing of fees and rates and ultimately to "any administrative
decision of general applicability". Incorporating such activities into a
definition of "political advocacy" is not simply modifying TBS definitions;
it is fundamentally altering the meaning of the term.

In the vast majority of instances, formulating rules and regulations
and establishing program guidelines are highly technical procedures and re-
quire information which is known only to experts in a particular field. Again,
who knows more about the provision of day care services than those engaged in
providing such service? If implemented, the OMB regulation would require the
Department of Health and Human Services to contact day care providers across
the country each time it required information for a new rule or regulation or
lose the value of their expertise altogether. Allowing servioe providers to
initiate communication is a far more sensible alternative. In the end those
who will suffer will be those in need and ultimately the general public who
will bear the burden of policy implemented in a vacuum.

B. USE OF FUNDS FOR ADVOCACY

Whether intentionally or unintentionally, the OMB's proposals would
erect insurmountable roadblocks for nonprofits accepting Federal funds to
engage in advocacy, although only funding from other sources is used for this
purpose. Established procedures provide nonprofits accepting Federal grants
and contracts with feasible methods of segregating Federal and nonfederal
monies. If the OMB proposals go into effect, such procedures will have no
applicability. For example, nonprofit organizations are currently permitted
to distinguish the portion of an employee's salary paid for from Federal
sources from the portion funded from other sources. As such, a nonprofit or-
ganization can use an employee to implement a government funded program and to
perform whatever other necessary assignments are required by the organization.
Under the OMB's proposals, however, a nonprofit employee whose salary was paid
in part with Federal money would be barred from engaging in advocacy. Ihe
OMB revisions would similarly preclude the use of office equipment for
advocacy purposes if it had been paid for in part with Federal funds. In
addition, OMB would prohibit a nonprofit accepting Federal funds from using
more than 5% of its offioe space for advocacy purposes.

Imposing restrictions of this severity on the nonprofit sector will
have a devastating impact on the ability of nonprofit organizations to partic-
ipate in the political process. The vast majority of nonprofit organizations
providing services to those in need operate on extremely limited budgets.

421

Attempting to engage in advocacy in the manner required by CMB would impose
an additional, crushing financial burden. At a practical level, a nonprofit
recipient of Federal funds would need to hire a separate staff and rent or
purchase separate office space and equipment to engage in advocacy. This,
of course, is impossible. The CMB is actually requiring nonprofits to choose
between providing services or taking positions on public policy questions
directly affecting the services they provide. Attempting to force such a
choice is highly unwise and unnecessary.

LEGALITY AND (XNSTTTUTICNALITY OF PROPOSED REVISIONS

We believe that the CMB's proposed revisions to Circular A-122 raise
significant legal and constitutional questions which this Committee should
examine in greater detail.

We strongly doubt that OMB has the statutory authority to regulate
"political advocacy". The Office is empowered to audit government expendi-
tures. Its authority to regulate advocacy has never been established. T^e
regulation of advocacy in the nonprofit sector has traditionally been accom-
plished by the direct action of Congress and by the IRS. If Congress would
like to involve the CMB in this effort, it should provide the Office with
legislative authorization. The Reagan Administration has soundly condemned
administrative determinations which exceed statutory mandates. Yet, we
believe the OMB proposals attempt precisely this. Apparently the principle
espoused by the Administration applies only to selected administrative decisions.

The Federation is also deeply concerned as to whether the Office of
Management and Budget has given due consideration to the basic First Amendment
rights to freedom of speech for those employed in the nonprofit sector. The
restrictions on communications with elected and appointed officials embodied
in the proposal strike no discernible balance between the need to insure the
proper use of Federal money and the need to protect the constitutional rights
of those in the nonprofit sector. For this reason alone, the Federation asks
this Committee to do all in its power to stop the CMB proposal from going into
effect.

Conclusion

The Federal Government has an obligation to both insure the proper use
of Federal funds and to foster an environment in which rational debate on
public policy can flourish. Over many years it has developed a variety of
policies to effectuate both purposes. The OMB's proposals would contribute
nothing of value in either area. In fact, they would succeed only in selec-
tively silencing those who have much to offer elected and appointed officials
at all levels of government. What is most distressing about the CMB's pro-
posals is that the Office is undoubtedly aware of the consequences of its
proposals and has proceeded despite that fact. It seems to view the nonprofit
sector as adversaries. This is regrettable and misinformed. It is also an

422

open invitation to the formulation of government programs which will be
wasteful, inefficient and incapable of fulfilling their intended purposes.

Thank you for the opportunity to testify.

Submitted by,

ps Austin
Vice President

Federation of Protestant Welfare Agencies, Inc.
281 Park Avenue South
New York, NY 10010
(212) 777-4800

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Conunents of INDEPENDENT SECTOR

Proposed Revisions to OMB Circular A-122

Summary

INDEPENDENT SECTOR is a coalition of nearly 500 national
voluntary organizations, foundations, and business corporations with
significant contributions programs, united by a shared commitment
to strengthen our national tradition of giving, volunteering, and
not-for-profit initiative.

INDEPENDENT SECTOR strongly opposes the proposed revisions
to OMB Circular A-122. These rules proceed from the premise that
federal grant funds should carry with them burdensome restrictions

— for many organizations the equivalent of an outright prohibition

— on grantees' First Amendment rights to lobby with privately
contributed funds. Three independent and individually sufficient
considerations require that this premise be rejected and the proposed
rules withdrawn:

1. The Proposed Rules Are Dnconstitutional . The government
cannot condition the receipt of a government benefit on the surrender
of a First Amendment right, except when the condition is narrowly
tailored to protect a compelling state interest. The proposed
requirement that grantees surrender their First Amendment rights to
engage in privately-funded political advocacy imposes far broader
restrictions on First Amendment rights than can be justified by any
compelling state interest. Accordingly, this restriction must be
struck down as an "unconstitutional condition" on the receipt of
federal grant funds.

2. OMB has No Authority To Issue The Proposed Rules .
The proposed rules are also legally invalid because they are (a)
outside the scope of the rulemaking authority delegated to OMB by
Congress, and (b) inconsistent with clearly stated Congressional
intent.

3. The Proposed Rules Would Undermine The Ability Of
Charities And Government To Meet Human Needs . To be effective
partners with government in "'responding to human needs, voluntary
organizations must be free both to provide services and to offer
advice on how those services might be improved. Dnder the proposed
rules they could do one or the other — but not both, except at a
prohibitively high cost and with greatly reduced effectiveness. The
substantial cost of this ill-conceived proposal would ultimately be
borne by those persons whom both grantees and the government agree
are in need and urgently need to be served.

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Description of INDEPENDENT SECTOR

INDEPENDENT SECTOR is a membership organization comprised
of 466 national voluntary organizations, foundations, and business
corporations with significant contributions programs. (A membership
list is attached.) These groups have joined together in INDEPENDENT
SECTOR to strengthen our national tradition of giving, volunteering,
and not-for-profit initiative. The organizations are as different
as the American Heart Association, the United Negro College Fund,
The Rockefeller Foundation, the National Council of Churches, the
Shell Oil Companies Foundation, the American Association of Museums,
The General Mills Foundation, the National Council of La Raza, Planned
Parenthood, and Catholic Charities. The common denominator of this
diverse mix is their shared determination that people will have
greater opportunity to influence their own lives and the kind of
society in which they live.

Analysis of Proposed Revisions to OMB Circular A-122

Congress has generally prohibited nonprofit organizations
receiving federal grants or contracts from using any federal funds
for lobbying or partisan political activities. These restrictions
do not, however, apply to grantees' privately-funded advocacy activi-
ties, even if conducted by the same personnel, and using the same
facilities, involved in the grant activity.

The cost accounting rules generally applicable to nonprofit
grantees and contractors, as stated in OMB Circular A-122, currently
contain no specific provisions implementing the restrictions on

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grantees' political activities. Instead, under the general princi-
ples of Circular A-122, grantees which engage in such political
activities, or in any other prohibited activities, are simply denied
reimbursement for the costs of those activities.

On January 24, 1983, OMB proposed, as an addition to Cir-
cular A-122, a special rule restricting the "political advocacy"
activities of nonprofit grantees and contractors. Contemporaneously,
the Department of Defense, GSA, and NASA proposed the addition of
comparable rules to their contract and procurement regulations.

Two aspects of the proposed rules have attracted intense
criticism from nonprofit organizations, the business community, Mem-
bers of Congress, and the General Accounting Office. First, contrary
to the general principles of Circular A-122 applied to enforce all
other restrictions on federal grant funds, the proposed rules would
deny reimbursement for entirely proper grant activities simply
because a grantee engages in privately-funded "political advocacy."*
Second, the rules would establish an extremely broad definition of
proscribed "political advocacy" activities.

In response to the intense public criticism, OMB announced
on February 25th that it will soon release for public comment a
substantially revised version of the proposed rules. Since the

1. More specifically, the proposed rules would deny reimbursement
for proper grant-related costs of employees and facilities if the
same employees or facilities were also involved in privately-funded
advocacy activities.

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principal effect of these revisions, according to OMB officials,
will be to narrow the range of proscribed "political advocacy"
activities, INDEPENDENT SECTOR will not comment on this aspect of
the OMB proposal until it has had an opportunity to examine the
revised rules.

Accordingly, these comments focus on the other major fea-
ture of the proposed rules, namely, the provisions that would deny
grantees reimbursement for proper grant expenses because they engage
in privately-funded advocacy activities. INDEPENDENT SECTOR is
unalterably opposed to such a rule — that would penalize grantees
for engaging in privately-funded advocacy activities — however
broadly or narrowly that rule might be applied. The basis for
INDEPENDENT SECTOR'S position may be summarized under the following
three heads.

1. THE PROPOSED RULE IS UNCONSTITUTIONAL
The Supreme Court has repeatedly and consistently held
that "even though a person has no 'right' to a valuable governmental
benefit, and even though the Government may deny him that benefit
for any number of reasons," it may not deny him the benefit "on a
basis that infringes his constitutionally protected interests — espe-
cially, his interest in freedom of speech." Perry v. Sindermann ,
408 U.S. 593, 597 (1972). Accord, Thomas v. Review Board , 450 U.S.
707, 716-18 (1981); McDonald v. Paty , 435 U.S. 618, 626 (1978); El rod
v. Burns , 427 U.S. 347, 355-59 (1976) (plurality opinion).

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This "unconstitutional conditions" doctrine applies with
full force here. The proposed rules would condition grantees' right
to reimbursement for entirely proper grant-related expenses on their
surrender of the right to engage in privately-funded advocacy activi-
ties — activities which are clearly protected by the First Amendment.
Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc. , 365 U.S.
127, 137-38 (1961); Consolidated Edison Co. v. Public Service Commis-
sion , 447 U.S. 530, 533 (1980).

Under established constitutional principles, such a state-
imposed restriction on freedom of speech is constitutionally permissi-
ble only if it satisfies a two-part test: first, it must be justified
by a compelling state interest, Consolidated Edison Co. , 447 U.S.
at 540; and second, it must be "closely drawn to avoid unnecessary
abridgment" of First Amendment rights. First National Bank v.
Bellotti , 435 U.S. 765, 786 (1978). Accord, Central Hudson Gas &
Electric Corp. v. Public Service Conunission , 447 U.S. 557, 565 (1980);
Shelton v. Tucker, 364 U.S. 479, 488 (1960). The proposed rules can
pass neither part of this test.

No Compelling State Interest . Neither Congress nor the
courts have ever suggested, nor does OMB assert, that the State has
a compelling interest in restricting the use of grantees' private
funds for advocacy activities. The governmental interest cited by
OMB, rather, is the far narrower one of preventing the use of federal
funds for advocacy activities. However, assuming for purposes of
argument that this is a legitimate State interest, OMB has utterly

20-644 O— 83 28

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failed to show that existing rules are in adequate to protect this
interest, and thus that the government has a compelling interest in
imposing additional restrictions on grantees' advocacy activities.

One would expect that rules imposing so great a burden on
First Amendment rights would be proposed only after thorough and
comprehensive analysis had demonstrated a serious compliance problem
under existing rules. However, OMB has presented no comprehensive
evidence showing widespread diversion of federal grants funds for
prohibited advocacy activities. Instead, in response to repeated
inquiries, OMB has identified only a small number of cases involving
arguable violations of the existing restrictions. Its written testi-
mony submitted to the Subcommittee on Legislation and National Secu-
rity of the House Government Affairs Committee identifies only three
such cases.

According to OMB, the definitive support for its view that
this small number of alleged violations is "the tip of the iceberg,"
is provided by studies conducted by the General Accounting Office.
Yet, in his testimony to the Legislation and National Security Subcom-
mittee, the Comptroller General disagreed. In response to a direct
question as to the seriousness of the problem, the Comptroller General
stated flatly, "the problem is not large."

The Restrictions Are Not Narrowly Drawn . Further, OMB has
failed to explain why broad restrictions on grantees' privately —
funded advocacy activities — rather than clarification or more
vigorous enforcement of the existing, far less burdensome

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restrictions on federally-funded advocacy — are needed to respond
to the limited violations it has identified. Each of OMB's proposed
justifications is untenable. First, OMB suggests that because of
lack of clarity in the existing rules, many of the activities which
it regards as violations are arguably permissible. Surely, the
proper initial response to this problem is to clarify the current
rules — not to reject them summarily in favor of far broader restric-
tions.

Second, OMB asserts that its proposed rules are needed
because enforcement of the current rules is "exceedingly difficult."
However, the Comptroller General, on whom OMB relies to support this
assertion, has flatly disagreed. In his congressional testimony,
the Comptroller General not only rejected the need for the broad OMB
has proposed, but also suggested that the OMB proposal, itself, would
create serious enforcement problems.

Third, OMB argues that the existing rules provide no effect-
ive sanctions because "the recovery by the government of a small
allocable share of costs wrongfully billed to the government provides
no deterrent to misconduct, and in many cases is so small as not to
justify enforcement at all." This argument turns logic on its head;
the very fact that the amount of funds diverted to advocacy is gen-
erally so small is hardly a reason why the penalty must be dispropor-
tionately large.

The overbreadth of OMB's proposed restrictions on pri-
vately-funded advocacy activities is further demonstrated by OMB's

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continued willingness to rely on far narrower restrictions to prevent
all other misappropriations of federal grant funds. This disparate
treatment clearly demands an explanation of why it is more difficult
under current rules for government auditors to cope with diversions
of grant funds for advocacy than for all other prohibited purposes.
OMB offers none. Absent such an explanation, one can only conclude
that OMB considers the public interest more gravely threatened by
diversion of grant funds for political advocacy — an activity pro-
tected by the First Amendment — than by outright theft, fraud, or

other misuse of public funds.

* * *

In sum, the proposed rules simply cannot be justified as
narrowly drawn to protect a compelling state interest. Accordingly,
they violate grantees' First Amendment rights to engage in advocacy
activities.

2. OMB HAS NO AUTHORITY TO ISSUE THE PROPOSED RULES
OMB cites no legal authority for issuance of the proposed
rules. Careful legal analysis indicates that it has none. OMB's
rulemaking authority, like that of other administrative agencies,
is limited to that delegated by Congress. As stated in a recent,
unanimous decision of the Supreme Court,

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The legislative power of the United
States is vested in the Congress, and
the exercise of quasi-legislative
authority by governmental departments
and agencies must be rooted in a grant
of such power by the Congress.

Chrysler Corporation v. Brown , 441 U.S. 281, 302 (1978). The proposed

rules are rooted in no such Congressional delegation of authority.

Congress has not delegated to OMB any specific authority to regulate

advocacy activities of nonprofit organizations receiving federal

grants and contracts. Nor can authority for the proposed rules be

found in Congress' general delegation of authority to OMB to issue

rules to promote "efficiency" and "consistency" in the administration

of federal grants and contracts. See , e.g. 41 U.S.C. §508.

Rules issued pursuant to such a general delegation of

authority are valid only if clearly and directly related to the

purpose for which Congress delegated that authority. Liberty Mutual

Insurance Company v. Friedman , 639 F. 2d 164, 169 (4th Cir. 1981).

To uphold such rules, a court must "reasonably be able to conclude

that the grant of authority contemplated the regulations issued."

Chrysler Corporation v. Brown, 441 U.S. 281, 308 (1978). In making

this determination, the courts have placed particular importance on

whether the agency has held hearings, conducted studies, or otherwise

developed a cogent administrative record demonstrating the

relationship between the proposed rules and the purposes Congress

sought to achieve in delegating the rulemaking authority on which

the agency relies. Liberty Mutual, supra , at 170-71. Moreover,

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where First Amendment freedoms and other fundamental constitutional
liberties are involved, the courts "construe narrowly all delegated
powers that curtail or dilute [such freedoms]." Kent v. Dulles, 357
U.S. 116, 129 (1958).

When tested against these established legal standards, the
proposed rules fall clearly outside OMB' s general rulemaking autho-
rity. As noted above, OMB has not presented a detailed and compre-
hensive set of findings to document the need for the proposed rules.
Instead, the studies cited by OMB provide only fragmentary and incon-
clusive evidence as to whether there is any compliance problem under
existing rules, and no evidence or analysis to suggest that the pro-
posed broad restrictions on grantees' rights to engage in privately-
funded advocacy are rationally related to the efficient adminis-
tration of federal grants. On the contrary, it is clear that the
required duplication of staffs and facilities would increase, rather
than decrease, the cost of federal grant activities. The obvious
absence of any nexus between the proposed restrictions and OMB's
proper regulatory objectives was underscored by the Comptroller Gen-
eral in his testimony to the Legislation and National Security Subcom-
mittee:

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433

Under the OMB proposal it is clear
that there is no reasonable

relationship between the proscribed
activities and the requirement for
forfeiture where the Government is not
being charged in any way for those
activities. We don't understand why
engaging in political advocacy on
one's own time is any different from
engaging in any other nonreimbursable
activity on one's own time.
[Emphasis added.]

This lack of rational relationship between the proposed
rules and the Congressional purpose underlying the grant of rulemaking
authority to OMB would invalidate the rules even if First Amendment
rights were not involved. Because such rights are involved, thus
requiring the courts to construe more narrowly OMB's delegated autho-
rity, the inadequacy of that authority to support the proposed rules
is yet more certain.

Moreover, the proposed rules are also invalid because they
are inconsistent with clearly stated congressional intent. When
Congress has explicitly addressed the question, it has made clear
that in imposing restrictions on the use of federal funds for advocacy
activities, it did not intend to restrict the privately-funded advo-
cacy activities of grantees. 2 Similarly, while imposing restrictions

2. For example, in discussing the 1967 amendments to the Economic
Opportunity Act of 1964, which initially imposed the restrictions
now contained in section 656 of the Head Start Act, 42 O.S.C. 9851,
the conference report states that,

Where a State or political subdivision, or a
public or private non-profit agency, carries on
programs assisted in whole or in part, under

434

Capun & Drysdale

CHARTERED
WASHINOTON, D C.

on legislative lobbying, Congress has generally not restricted gran-
tees' rights to contact executive agencies. On both points, there-
fore, the proposed rules are inconsistent with clear manifestations
of Congressional intent. The Supreme Court has consistently held
that rules which are so clearly "out of harmony with [Congressional
intent]," are "a mere nullity." Manhattan General Equipment Co. v.
Commissioner , 297 U.S. 129, 134 (1936); Dixon v. U.S. , 381 U.S. 68,
74 (1965); U.S. v. Larinoff , 431 U.S. 864, 873 (note 12) (1977).

3. THE PROPOSED RULES WOULD UNDERMINE THE ABILITY OF

CHARITIES AND GOVERNMENT TO MEET HUMAN NEEDS

This Administration has repeatedly stressed its commitment
to the importance of public-private partnerships in meeting human
needs. We share that commitment, and the fundamental premise on
which it rests, namely, that the private sector — particularly pri-
vate voluntary organizations, with their deep roots in the community
and their long traditions of community service — often have a clearer

(cont.)

this Act, the limitation of [this section] does
not apply to any other activities they may carry
on with funds not provided under the authority
of the act. Similarly, officials and personnel
of such agencies are subject to the limitations
of this section only as to that portion of their
time for which they receive compensation
provided directly or indirectly under the
authority of the Act .

H. Conf . Rpt. No. 1012, 1967 U.S. Code Cong. & Ad. News, at P. 2598,
90th Cong., 1st Sess. (Emphasis added.)

435

Capijn Sc Drysdale

CHARTERED
WASHINOTON. D. C-

understanding than does government of community problems and how
best to address them.

However, public-private partnerships cannot work
— indeed, the very concept becomes incoherent — if government seeks
to build a wall preventing communication between the public and pri-
vate partners providers. A vital partnership must be an equal
partnership. The private "partners" must be free — as they would
not be under the proposed rules — to offer advice as well as to
shoulder the day-to-day responsibilities of providing services.

OMB claims to accept this premise, and asserts that its
proposed rules would not preclude such an equal partnership. It
suggests that private organizations could continue both grant-funded
activities and privately-funded advocacy activities, and would
"merely" be required to conduct these activities with separate staffs
and facilities. However, this suggestion of a total physical separa-
tion of grant and advocacy activities is so patently unworkable as
to seem disingenuous.

Separation Would Often be Impossible . Small local organi-
zations, often with a paid staff of only one or two, comprise a large
and important part of the voluntary sector. For virtually all of
these small organizations, creating separate staffs, much less sepa-
rate facilities, for advocacy and all other program activities would
be an absolute impossibility. These organizations would thus face
the stark choice of abandoning one or the other of these activities.

436

Caplin fle Drysdale

CH ARTE NED
WASH1NOTOM. &C

Separation is equally impossible for key personnel of lar-
ger organizations. For example, an executive director would have
no choice but to stay on one side or the other of the wall OMB seeks
to erect between advocacy and other program activities. Whichever
side were chosen, an executive director so constrained could hardly
provide effective overall leadership for his or her organization.

Separation Would be Wasteful . The duplication of staff
and facilities suggested by OMB would also be manifestly wasteful.
Both government and private resources that would otherwise be avail-
able to meet basic human needs would be needlessly spent hiring two
staffs, paying for two copying machines, renting two offices, and
duplicating every other resource required for the organization's
activities. At a time when we are painfully aware of the limited
resources available to meet social needs, such waste would be uncon-
scionable. That a proposal entailing such waste should come from
OMB is simply incredible.

Separation Would Mean Ill-informed Government Decisions .
An administration which recognizes as a fundamental weakness of the
federal government its remoteness from the social problems it seeks
to address should be concerned with providing government
decision-makers with more information — not less — from the service
providers in the front-line trenches. Yet under the proposed rules,
the only employees of a nonprofit grantee who could discuss the grant
program with government officials, or share their views on the program
with the public, would be those employees who have absolutely no

437

Ca_plin & Drysdale

CRAJtTERZD
WASHINOTON. IXC

involvement with the grant activities. Nor could these non-grant
employees first solicit the views of their grant-supported collegues
without violating the strict separation that the proposed rules would
require. Thus, both government officials and the public would be
denied the advice of those persons with the most intimate knowledge
of a grant program's strengths and weaknesses. The inevitable results
would be ill-informed decisions, ineffective programs, and, most
importantly, needlessly unmet human needs.

Conclusion

The proposed rules are unconstitutional and outside OMB' s
rulemaking authority. Far from strengthening the political process,
they would seriously undermine it. Instead of promoting public-pri-
vate partnerships, they would frustrate both public and private
efforts to meet urgent human needs.

In his testimony to the Subcommittee on Legislation and

National Security, the Comptroller General stated that,

We think that any regulations go
too far ... when they require a
Federal contractor or grantee to
forfeit reimbursement for legi-
timately incurred expenses
merely because the contractor or
grantee has engaged in perfectly
proper political advocacy with
non-Federal funds.

INDEPENDENT SECTOR agrees, and strongly urges that the

proposed amendments to Circular A-122 be withdrawn.

438

Statement of Charles V. Bergstrom

Lutheran Council in the USA

To the House Committee on Government Operations

Subcommittee on Legislation and National Security

on the Issue of Proposed Amendments to the

Office of Management and Budget Circular A-122

March 4, 1983

My name is Charles V. Bergstrom. I serve as Executive Director of the
Office for Governmental Affairs, the Lutheran Council in the U.S.A. On behalf
of the Council, I express appreciation to the Chairman and to members of the
Subcommittee for conducting the hearing on March 1, 1983, and for providing
the opportunity for the Lutheran Council and its constituent bodies represented
by our office. I am speaking on behalf of three church bodies of the Lutheran
Council :

The American Lutheran Church, headquartered in Minneapolis,
Minnesota, composed of A , 900 congregations having approxi-
mately 2.4 million U.S. members;

The Lutheran Church in America, headquartered in New York,
New York, composed of 5,800 congregations having approxi-
mately 2.9 million members in the U.S.; and

The Association of Evangelical Lutheran Churches, head-
quartered in St. Louis, Missouri, composed of 270 congre-
gations having approximately 110,000 U.S. members.

We share in the opposition expressed by members of your committee, other
members of Congress, and the long list of witnesses who appeared on March 1. My
statement will be very brief, since the Lutheran Council in the USA is a member
of the Independent Sector. The president of the Independent Sector, Mr. Brian
O'Connell, appeared as a witness at the March 1 hearing of your Subcommittee;
in his written report he specifically has labeled the 0MB Circular A-122 amend-
ments as "unnecessary, unworkable, and unconstitutional." We concur.

In 1979, the Lutheran Council convened a consultation on church and govern-
ment, and in May of that year adopted a statement concerning the churches'
ministry of advocacy. A copy of that statement is attached. It presents a
very clear theological basis for church-government interaction and for advocacy.
I ask that you note particularly the emphasis on the need for such interaction
for the common good of all, for the alleviation of poverty, and the continued
strengthening of social justice. I quote the following from that 1979 statement
as directly related to our oppositions to 0MB Circular A-122:

"That the Lutheran Council urge the participating churches
to object when governmental regulation of church-related
educational institutions and social service agencies violates
due process, exceeds statutory authority or infringes on
First Amendment guarantees;

439

"That the Lutheran Council encourage the participating
churches to join, when possible, with other members of
the voluntary sector in objecting to unreasonable
regulations ;

"That in order to maximize the access of citizens in
our pluralistic society to education and social services
from agencies and institutions of their choice the Lutheran
Council encourage the further exploration and assessment
of all constitutional means of government support for a
variety of social and educational services at all levels,
whether public, private, or church-related."

We oppose the OMB amendments to Circular A-122 and we will oppose any
revised editions. There is no need for it and it is a mockery in the face of
the administration's call upon the voluntary sector for help in serving people.
Surely it is clear that no great misuse of government funds has occurred. The
nonprofit voluntary sector's record is one of dedication.

We believe that the religious community is in a unique position to provide
assistance — both privately and governmentally funded — to those in the society
who are in the greatest need, both at home and abroad. We are committed,
because of our religious and moral beliefs, to serve all of God's people and
to be the servant of no special interest groups. We advocate justice on behalf
of those who are powerless and in need — not ourselves.

The implementation of the proposed amendments would hamper our agencies
severely in our ministries, and we urge that the proposed amendments be with-
drawn.

440

CHARIIS W STrWART

ihom*s i russeu .

MACHINERY and ALLIED PRODUCTS INSTITUTE

1200 EIGHTEENTH STREET. N.W. WASHINGTON. D.C. 20036 202-331-8430

March 2, 1983

(RED E SHAND

Mr. John J. Lor dan
Chief, Financial Management Branch
Office of Management and Budget
Washington, DC 20503

Dear Mr. Lordan:

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JOHN A. YOUNG Pn.-d.nl

Proposed Revision to 0MB Circular A-122
Relating to Pol it ical Advoc acy

The Machinery and Allied Products Institute (MAPI) wishes to
respond to the notice in the Federal R egister of January 24 inviting
comments on a proposed revision to 0MB Circular A-122, "Cost Principles
for Nonprofit Organizations," which would broadly disallow, for such
contractors, costs relating to what is termed "political advocacy." In
addition, through separate actions by the Department of Defense (DOD),
the National Aeronautics and Space Administration (NASA), and the
General Services Administration (GSA), the text of the revision has also
been proposed for application to all ("for profit" as well as nonprofit)
contractors with the federal government.

As you may know, MAPI represents the capital goods and allied
product industries of the United States. Although most of the companies
in these industries are oriented toward commercial rather than
government sales, these companies are the source of continuing
technological improvement and product excellence and many of them are
indispensable to the fulfillment of the government ' s requirements,
particularly in the national defense area. Hence our deep interest in
the federal government's procurement policies used in connection with
its purchases from private industry, including the proposed disallowance
of all contractor "political advocacy" costs.

We recognize, of course, that in a direct sense the 0MB
proposal concerns Circular A-122 which has applied only to nonprofit
contractors and not to the "for profit" category of government
contractor represented by MAPI. However, we understand that the
separate actions of DOD, NASA, and GSA with respect to proposing the
same regulation for "for profit" contractors were in effect mandated by
0MB (as also seems indicated in 0MB' s official "Summary" which, together
with a set of "informational" questions and answers, was included in the
Federal Register notice concerning the proposed revision). Under the
circumstances, therefore, ve are addressing ourselves to the proposed
revision as if it applied to all government contractors and grantees and
not solely the nonprofit contractors which have been specifically
covered by Circular A-122.

MACHINERY * ALLIED PRODUCTS INSTITUTE AND ITS AFFILIATED ORGANIZATION. COUNCIL FOR / _ n

TECHNOLOGICAL ADVANCEMENT. ARE ENGAGEO IN RESEARCH IN THE ECONOMICS OF CAPITAL GOODS ( flfk

(THE FACILITIES OF PRODUCTION, DISTRIBUTION, TRANSPORTATION. COMMUNICATION AND COMMERCE) » — - '
IN ADVANCING THE TECHNOLOGY AND FURTHERING THE ECONOMIC PROGRESS OF THE UNITED STATES

441

We are opposed to the proposed revision and urge that it be withdrawn.
Indeed, in a letter dated February 23 to Director Stockman, we stated the
following:

... [W]hat was intended initially as a relatively narrow
effort has been allowed to mushroom to a point where the
proposal goes beyond any reasonable concept and restriction.
The definition of "political advocacy" is extraordinarily and
unreal ist ically broad. In the real world of relations between
the government and the private sector, the proposal would:

1. Disrupt and/or penalize normal and proper contacts between
private entities and government officials;

2. Impede seriously government-initiated efforts to obtain
the cooperation of private business with respect to public
policy issues under consideration by one or more parts of
government, particularly where the view of the
Administration in office is shared by the private sector;

3. Further erode the allowable cost base of government
contractors who already are denied allowance for certain
costs that merit favorable treatment;

4. Create administrative problems of compliance that would be
wholly inconsistent with the deregulation efforts
spearheaded by the Reagan Administration; and

5. Utterly fail to serve the national interest in a true
sense.

In our view, clearly this project has taken on the
characteristic of a "runaway horse." The project should be
slowed down and reevaluated in the light of those
considerations cited above. . . .

We have noted the OMB announcement of February 25 that the proposed rules
will be replaced by a revised proposal on which further public comments will be
invited. Our comments are being submitted at this time in order to be helpful as
OMB considers the project further.

We, of course, are pleased that the current proposed revisions are to be
withdrawn but we urge that this project be scrapped in its entirety. As a
practical matter, based on the overwhelming opposition to the proposal indicated
at the hearing held by the House Government Operations Subcommittee on Legislation
and National Security on March 1 and the suggestions from Chairman Brooks and
other subcommittee members to that effect, we think that OMB should recognize
congressional and public sentiment and announce that this project is terminated.

442

The Baei c Issue — A pplication to
"For Profit" Cont ractors

The fundamental issue involved here, we think, is the attempt to apply
across the board to all government contractors what apparently was initially
designed as a restriction against certain nonprofit contractors and grantees.
Frankly, a careful analysis of the impact of the proposed revision on "for profit"
contractors will indicate that its application under these circumstances just doe6
not make sen6e. In our judgment, there is an essential difference — which is not
acknowledged in the proposed revision — between nonprofit and "for profit"
contractors. The latter are commercial entities whose expenditures must be tied
to profit objectives and the pressures of the competitive marketplace and whose
responsibility is ultimately to their proprietors or boards of directors. As such
they are not at liberty to engage in "political advocacy" spending unless such
spending, most of which comes from their own funds, has some direct and obviou6
relationship to their business and its welfare.

On the other hand, many nonprofit contractors and grantees have no such
"commercial" responsibilities and their funding may be entirely or substantially
derived from the federal government. Any limitation which might conceivably be
appropriate for such contractors should not apply, for the reasons indicated, to
"for profit" contractors, particularly those whose business is predominantly
commercial. And, as we noted at the outset, this predominant emphasis on
commercial ity is typical of the companies represented by MAPI. What these
companies spend on any form of "political advocacy" is determined by the needs of
their business. And the government should bear its reasonable and allocable fair
share of any indirect business costs that are legally incurred and serve a
legitimate business purpose.

Rationale for the Regulation

The "Summary" which was included in the Federal Registe r, along with the
text of the proposed revision, discusses what presumably is intended to serve as
OMB's justification for this action. Some comment on that rationale appears to be
in order. First, the "Summary" indicates its concern "for protecting the free and
robust interchange of ideas," thus implying an objective of attempting to
strengthen First Amendment free speech. This is to be done by increasing the
cost for government contractors to engage in "political advocacy." Thus there is
an attempt to strengthen freedom of speech by making it more difficult to apply
that right. This strikes us as some of the most convoluted reasoning we have
heard in a long time. The obvious way to strengthen freedom of speech, in this
context, is to recognize political advocacy as a valid indirect cost.

Secondly, it is stated that "(t)he definition of political advocacy used
in this proposal is derived generally from the Internal Revenue Code, 26 U.S.C.
4911 . . . ." However, this provision and Code Section 501(h) to which it relates
concern excess expenditures for public charities to carry on propaganda or
otherwise attempt to influence legislation. The two situations are hardly
equivalent. Moreover, even if there was some similarity, which is not the case,
it should be noted that the excise tax on excess expenditures for public charities
does not apply to "appearances before, or communications to, any legislative body
with respect to a possible decision of such body which might affect the existence

443

of the organization, its powers and duties, tax-exempt status, or the deduction of
contributions to the organization; . . ." (Section 4911(d)(2)(C)). This
exception, of course, is not recognized in the proposed regulation here under
discussion.

Statutory Ba ckground

The two major federal statutes on lobbying are the essential basis upon
which an analysis of the proposed revision should be made.

The Federal Regulat ion
of Lobbying Ac t

The Federal Regulation of Lobbying Act, a part of the Legislative
Reorganization Act of 1946, imposes registration requirements in connection with
activities designed to influence, directly or indirectly, the passage or defeat of
legislation by the Congress. However, under the Act, the registration
requirements expressly do not apply to a person who does nothing more than appear
before a committee of the Congress in support of or in opposition to legislation.

In the Harriss case, the U.S. Supreme Court, in order to sustain the
validity of the statute against constitutional objections, limited its reach to
what is referred to as "'lobbying in its commonly accepted sense' — to direct
communication with members of Congress on pending or proposed federal
legislation." As so limited, the Court held that the 1946 Act does not violate
the freedoms granted by the First Amendment to the Constitution — freedom to speak,
publish, and petition the government. But the Court made this judgment in the
light of the fact that persons subject to the Act are merely required to register
and to furnish information on their activites. It pointed out that Congress had
not sought to prohibit such activities, and it seems implicit that any such
prohibition or penalties with respect to such activities would probably have been
held to be constitutionally invalid.

The Federal Income Tax De d uction

Under Section 162(e) of the Internal Revenue Code, originally added by
the Revenue Act of 1962, a Federal Income Tax deduction is allowable for ". . .
all the ordinary and necessary expenses ... in direct connection with
appearances before, submission of statements to, or sending communications to, the
committees, or individual members, of Congress or of any legislative body of a
State ... or a political subdivision . . . with respect to legislation or
proposed legislation of direct interest to the taxpayer . . . ." So long as the
legislation in question is of direct interest to the taxpayer within the meaning
of this provision, expenses relating to either oral or written communications with
either a member of Congress or a congressional committee are tax deductible.

In our view, proposed limitations — if any are determined to be
necessary — on the allowability of political advocacy costs for contract purposes
should be held within the confines of the statutory treatment of the tax
deduction. Restrictive treatment beyond this point, in addition to being highly
inappropriate from a policy point of view, raises serious constitutional questions
which were alluded to by the Supreme Court in the Harriss decision.

20-644 O— 83 29

444

It is obvious that the proposed political advocacy cost disallowance goes
far beyond the scope of these existing analogous statutory provisions which
apparently have been accorded no weight in the drafting of the proposal.

Key Prov i sions of the P r oposed Revision

At this point, we discuss the key provisions of the proposed revision to
the Circular. This analysis, in our judgment, supports the basic recommendation
we have made above that the proposed revision be withdrawn.

Political Ad voca cy

Under Section b of the proposed revision, the following are included
within the term "political advocacy," the cost of activities constituting which
would be unallowable:

(1) Attempting to influence the outcome of any Federal,
State, or local election, referendum, initiative, or similar
procedure, through contributions, endorsement, publicity, or
similar activity;

(2) Establishing, administering, contributing to, or paying
the expenses of a political action committee, either directly
or indirectly;

(3) Attempting to influence governmental decisions through
an attempt to affect the opinions of the general public or any
segment thereof;

(4) Attempting to influence governmental decisions through
communications with any member or employee of a legislative
body, or with any governmental official or employee who may
participate in the decisionmaking process;

(5) Participating in or contributing to the expenses of
litigation other than litigation in which the organization is a
party with standing to sue or defend on its own behalf; or

(6) Contributing money, services, or any other thing of
value, as dues or otherwise, to an organization that has
political advocacy as a substantial organizational purpose, or
that spends $100,000 or more per year on activities
constituting political advocacy.

Categories one and three. — The first and third categories, elections and
the like and grass roots lobbying, are not tax deductible under Code Section
162(e) and their cost disallowance under government contracts would simply accord
with their federal tax treatment.

Category two . — Category two concerns political action committees (PACs).
Certain activities relating to PACs can be classified as political advocacy, but

445

it should be recognized that euch a classification for the purpose of the cost
disallowance rules will create some great practical difficulties. Suppose the PAC
uses corporate facilities or equipment in connection with its activities; does
that make the entire cost of such equipment or such facilities unallowable? What
about the salary of an employee who is active in the PAC? Or the salary of an
employee who makes out and gives a check to the PAC, all on his own time? Total
cost disallowance under these circumstances would seem both unreasonable and
absurd.

Category four . — The key disallowance, to which there is the most
fundamental objection concerning the "political advocacy" concept, is category
four. This, in effect, would label as "political advocacy" any attempt to
influence governmental decisions for any government official or employee — without
regard to whether that individual was a part of the legislative or executive
branch of government and without regard to the level of government (federal,
state, county, or local). Thus it would not recognize cost allowability with
respect to activity concerning legislation in which the contractor has a direct
interest, as does Code Section 162(e) for federal tax deductibility.

In this connection, it should be realized that government contractors
engage in many activities with respect to federal, state, and local legislative
bodies, and officials and employees, which are necessary to assure timely and
efficient performance of contract requirements, to enhance contract performance,
or to obtain results beneficial to the federal government. For example, one of
our member companies has reported to us that, with the encouragement and support
of its corporate administrative contracting officer, it has pursued a vigorous
course of action at local and state levels to prevent the imposition of property
taxes on government-owned tooling.

He think that any such limitation on the legislative process should be
left to the Congress or to the pertinent state or local legislative bodies.

Moreover, category four would constitute the first federal regulctory
inhibition concerning nonlegis lative political advocacy. We are strongly opposed
to any attempt to label such activity as "political advocacy" for regulatory
purposes. Congress, for its part, has rejected suggestions to this effect in
connection with legislative proposals to reform the Federal Regulation of Lobbying
Act in the past. The principal difficulty here is that there is an attempt to
delimit advocacy with respect to executive branch departments and agencies by
simply labeling it "political" and suggesting a connotation that it is therefore
automatically suspect and should be curbed. In our view indirect costs of such
activity, within reason of course, should be allowable.

Category five . — Category five relates to amicus curiae participation for
a contractor in litigation in which it is not formally a party. Again this type
of advocacy has never before been subject to constraints, and the attempt to
establish such constraints is going to cause great difficulty. For example, one
of our member companies has noted an instance concerning recent decisions of the
California Supreme Court requiring contractors to pay accrued vacation pay to
terminated employees without regard to whether the employee achieved a specified
anniversary date. Unless overturned, this decision will increase the costs of
contract performance; the legitimate interests of the federal government will be

446

served by seeking to have the decision reversed or narrowed. However, the
proposed revision would have the effect of requiring each contractor to sue or
resist suit in its behalf only. And such a result is clearly less economical to
the federal government than allowing contractor amicus curiae contribution in a
test case.

Category s ix. — Category six covers the payment of dues and other fund6 to
an organization that has political advocacy as a substantial organizational
purpose or spends at least $100,000 annually on such advocacy. This frankly would
cover most business associations with which we are familiar because generally such
organizations state as one of their fundamental purposes what is referred to as
public policy representation of its membership. Accordingly, the proposed
revision would make the cost of membership in any such organization much more
expensive than is currently the case for government contractor members.

Exceptions to Political Adv ocacy

Section c of the proposed revision spells out five classes of activities
which are specified as not constituting "political advocacy." The key ones from
our point of view, which would appear to offer the most likely possibility of some
relief, are the second and fourth classes which read as follows:

(2) Providing technical advice or assistance to a
governmental body or to a committee or other subdivision
thereof in response to a written request by such body or
subdivision;

(4) Applying or making a bid in connection with a grant,
contract, unsolicited proposal, or other agreement, or
providing information in connection with such application at
the request of the government agency awarding the grant,
contract, or other agreement; . . .

In our view, the exceptions which are provided by these classes are
wholly inadequate. Class two provides an exception to a communication in response
to a written request by a governmental body or committee so long as the response
consists of providing technical advice or assistance to that governmental body or
committee. Why should the request from the governmental body or committee have to
be in writing? That presumably will mean that any telephone call request would
have to be subsequently confirmed in writing. Moreover, the fact that the
communication is in response to a request is, by itself, not sufficient; the
advice or assistance provided must be "technical" in nature. We think that any
technical advice or assistance should be within the exception, without regard to
whether it was volunteered or requested.

Concerning class four — the marketing exception — it is inadequate because
it would, in effect, permit communication only at the request of the government
agency or in connection with a grant, contract, unsolicited proposal, or other
agreement. He assume that any communication concerning a prospective sale which
does not constitute an unsolicited proposal within the meaning of this rule, would

447

constitute the proscribed "political advocacy" regardless of the fact that the
communication was unquestionably undertaken for marketing purposes. Moreover,
there are many matters that concern government contracting but do not relate to a
specific contract and thus presumably would not be covered by the exception — for
example, negotiating forward pricing agreements, final overhead rate agreements,
and resolving issues raised in connection with operations audits.

Political Advo cacy by
an Organization

Section d covers the question of when an organization is deemed to have
political advocacy as a "substantial organizational purpose." That provision
states that if the organization's solicitations for membership or contributions
acknowledge that the organization engages in activities constituting political
advocacy, that would be sufficient to establish such advocacy as a "substantial
organizational purpose." Such a rule, as we have indicated previously, makes
absolutely no sense as applied to the typical business association representing
"for profit" contractors because most such organizations typically claim public
policy representation of their membership as one of their principal activities or
purposes for existence.

The "All or Nothing" Rules

Section f of the revision establishes special rules with respect to cost
unallowability for both salary costs of individuals and the costs of buildings,
equipment, and the like. The basic rule here is that if there is any political
advocacy activity whatever on the part of the individual in question (other than
activities which are both "ministerial" and "non-material") or with respect to the
building, office space, or equipment used, the entire function is viewed as
contaminated and all of the salary or other costs would be considered to
constitute political advocacy costs and would therefore be unallowable. In
effect, this would mean that the complete salary of a corporate chief executive
officer would be disallowed if that CEO engaged in any activity constituting
"political advocacy" within the meaning of the proposed revision, regardless of
how slight or inconsequential that activity might be as compared to that CEO's
total activities. The same rule would apply with respect to the use of equipment,
as is indicated by the third question in the quest ion-and-answer series covering
the use of a corporate aircraft for political activities as well as for the
oversight and management of a federal contract. The only exception would be with
respect to the use of a building or office space. However, in that case, if more
than five percent of the usable space is devoted to activities constituting
political advocacy, the entire rental or like costs would be disallowed.

The basic purpose of this "all or nothing" rule purportedly would be to
avoid audit controversy over what should be an appropriate allocation between
political advocacy and nonpolitical advocacy activities. But it seems to us that
the end result of this rule, as applied, is to point out the absurdity of trying
to make a complete disallowance of the cost when only a small part of the activity
in question constitutes political advocacy, even within the strained meaning of
the proposed revision. Comptroller General Charles A. Bowsher was very critical
of this rule during his testimony in hearings on March 1 by the House Government
Operations Subcommittee on Legislation and National Security.

448

These rules would disregard current accounting principles and standards
vith respect to both unreasonableness and allowability, and would be penal in
nature. We have heard that they are intended to establish a "wall of separation"
between political advocacy and other corporate activities. But this simply will
not work; even large companies with Washington offices and legislative liaison
activities would not be able to live with this rule. When they need expertise in
connection with a matter relating to political advocacy, they normally will bring
someone in the company, who is an expert in this area, to work with the Washington
office and legislative liaison activity. And presumably the entire salary of that
individual as well as those in the Washington office and the legislative liaison
activity would be unallowable. This rule for complete cost disallowance is, we
submit, patently unreasonable.

For all of these reasons, the proposed revision is unacceptable and
should be rejected in its entirety.

This concludes our comments on the proposed revisions to OMB Circular
A-122 relating to political advocacy. We will be prepared to comment on the
revision of this proposal which OMB has indicated in its February 25 announcement
that it expects to publish in about two weeks. However, our strong view is that
the entire proposal should be scrubbed without putting government and business for
any further period through the agony of trying to perfect a wholly faulty and
unwise concept and project.

Sincerely,

^6s^^/^W/^

President

mfm

Edwin Meese III

Counsellor to the President

Edwin L. Harper
Assistant to the President
for Policy Development

David A. Stockman
Director, Office of
Management and Budget

Joseph R. Wright, Jr.
Deputy Director, Office of
Management and Budget

449

NATIONAL ANTI-HUNGER COALITION

The Honorable Jack Brooks
Chairman, House Committee on

Government Operations
Subcommittee on Legislation and

National Security
Washington, D.C.

RE: March 1, 1983 Subcommittee
February 2k, 1983 Hearing on OMB' s Proposed

Amendment to Circular A-122

Dear Chairman Brooks:

We respectfully request that the following testimony, submitted on
behalf of the National Anti-Hunger Coalition, Rural America, and the Food
Research and Action Center, become a part of the record of the March 1,
1983 hearing on OMB's proposed amendment to Circular A-122.

Testimony

Claiming widespread abuse of current prohibitions on the use of
federal funds by non-profit organizations for lobbying and electioneering, OMB
has proposed regulations (48 F.R. 33^8) which, if implemented, will
dramatically restrict many non-profit organizations from participating in
governmental decision-making even when private funds are used to finance
such activities.

To date, neither OMB nor GAO have provided documentation of the
alleged abuses, nor have they provided sound arguments as to why rigorous
enforcement of current law will not achieve adequate compliance with
Congressional intent.

We oppose the proposed regulatory amendment for the following reasons:

° 0MB's proposal is unconstitutional. It impermissibly
conditions the receipt of federal assistance on waiver of
the right of free speech. It restricts the exercise of free speech
even when no federal funds are envolved .

° 0MB's proposal flouts Congressional perrogatlves . The
Constitution places with the Congress the power to decide
what limits shall be placed upon those receiving Congressionally
authorized and appropriated monies. The Congress has prohibited
the use of federal funds for lobbying or electioneering at
tax-payer expense. However, mindful of the 1st Amendment
and the lack of any credible evidence suggesting the need for
further restrictions, Congress has not extended these prohibitions
to private funds. Further, current Congressional prohibitions
concerning the use federal funds by non-profits do not encompass
the types of onerous restrictions OMB seeks to impose. OMB
has usurped Congress' power by issuing the proposed regulation.

450

-2-

° OMB's proposal Is excessive . It abandons "traditional
cost allocation rules which appropriately disallow only
the use of federal funds spent outside the authorized scope
of grants or contracts. It disallows the entire annual
costs of salary, facilities, equipment, printing and meeting
costs if any federal or private funds are expended for the
new and broadly defined "political advocacy".

° 0MB's proposal is inequitable . Without justification it
applies only to certain non-profit grantees, excluding the
largest recipients of such federal funding. ( Hospitals,
universities and state and local government are exempted).
Further, by allowing non-profits (and arguably, businesses
under GAO, DOD and NASA) to provide input only at the invitation
of a governmental body, it creates a scheme where favoritism,
cronyism, and discrimination will inevitably flourish.

° 0MB's proposal overreaches . They would prohibit
non-profit organizations from communicating with any member
or employee of a legislative body, or with any government
official or employee who may particiapte in the decision
making process, whether such contacts were funded with federal
or private monies.

Conclusion

At the invitation of the federal, state and local governments, non-profit
organizations provide essential services for many underprivileged persons.
Without access to responsible governmental officals, the quality of such
services will be diminished substantially. Costs of such services will
rise and disruption will occur. Governmental decision-making should be
a function of an open process, which includes the full exchange of ideas
and information. The proposed changes in Circular A-122 will shut off
that flow of information, both into and out of government.

We urge that your Subcommittee thoroughly review the proposed
regulations and the justification for their issuance. We believe the
record will establish no basis for this unwarranted intrusion upon the
1st amendment. To assist your inquiry, we respectfully submit the
following questions and urge that 0MB officials be required to provide
the Subcommittee with adequate answers to them.

Respeetnully submitted,

Japes toiler
mil, ANTI-HUNGER COALITION

David Raphael
RURAL AMERICA

Mane

Nancy Amldei
THE POOD RESEARCH AND ACTION CENTER

451

Sow? Questions for OMB on Part B33 ("Political Advocacy") of Circular A-122 !

Note : Throughout this document, the terms "grantee", "nonprofit", and
"contractor" are used interchangeably, except as noted; "FFP" means federal
financial participation in a grant, contract, or "other agreement"; "tainted"
means regarded by OMB as engaging in "political advocacy."

1. OHB'S AUTHORITY AND RULEMAKING PROCESS

Federal laws already bar federal grantees and contractors from electioneering or
lobbying Congress, directly or indirectly, at taxpayer expense. Does OMB intend
for B33 to reach into judicial, legislative and administrative areas where
Congress has refused to go? If so:

What is the source of OMB ' s authority to regulate federal contracts?
What is its source for regulating federal grants? *

Does OMB regard its process of revising A-122 to be controlled by the
Administrative Procedure Act? If not, what procedures are in effect for it? For
example, is it governed by the Regulatory Reduction Act?

Does OMB intend for federal agencies to use B33 as an eligibility requirement for
federal programs?

If so, what is the source of OMB's authority to impose new eligibility
requirements on federal programs?

If not, how does OMB propose to prevent federal agencies from denying FFP to
applicants that lack separate staffs, facilities, equipment, etc., even if
they do not engage in political advocacy?

2. OMB'S JUSTIFICATION FOR THE PROPOSAL

What evidence does OMB have that federal agencies, using accounting standards,
laws and rules already on the books , are unable to control alleged political abuse
of federal funds?

What is the cite in OMB's preamble to GAO findings in this area?

Have the Inspectors General agreed that current policies are inadequate?

If political abuses are as widespread as OMB alleges, why has it exempted some of
the largest federal recipients?

Why are universities, hospitals, state and local governments exempted?

Do universities and other institutions of higher education remain exempt if

they accept DoD research contracts?

Are nonprofit organizations that they sponsor also exempt?

1 Office of Management and Budget. "Cost Principles for Nonprofit
Organizations," 48 Federal Register (1/24/83), pp. 3348-51.

OMB questions, page 1

452

3. SCOPE OF COVERAGE

What is the scope of federal assistance covered by 0MB*6 proposed revisions to
A-122, GSA procurement regulations, DoD acquisition rules, etc? For example,
would they cover:

- free space in federal buildings? (eg, to veterans' organizations)

- free use of other federal property? (eg, patents, equipment)

- commodity procurements?

- commodity donations?

- PIK contracts?

- contracts of insurance?

- federal tax expenditures by organizations that deduct lobbying costs at
"ordinary and necessary" business expenses?

- federal contributions to the United Nations?

- federal deposits in financial institutions?

- public/private partnership agreements?

- federal "categorical pass-through" funds reappropr iated by states and used
to make subgrants to nonprofits?

Does OMB intend to restrict political advocacy not only by organizations but also
by individuals who receive federal funds? (eg, research grants)

How does B33 apply to comments from grantees on federal rulemakings like this one?
What about at public hearings?

What does OMB include under "other agreements"?

4. FEDERAL COST IMPLICATIONS

The government now commonly finds cost sharing of grantee overhead and "core
services" to be more economical than duplicating motor pools, accounting
departments, etc.

What is OMB' 8 estimate of increased federal costs that may result from the
inability of grantees to continue sharing costs with non-federal funds and
organizations that engage in political advocacy?

Does OMB plan to issue an inflation impact statement on its proposal? When?

OMB questions, page 2

453

5. IMPACT OH STATES AND LOCAL GOVERNMENTS

B33 appears to ban all unsolicited contacts between nonprofits and legislative,
judicial or administrative officials and employees at local, state, and federal
levels who "may participate in the decision- making process".

Does OMB intend to restrict state and local officials from accepting
unsolicited participation by a federal grantee in their governmental
decisions?

Would grantees be "tainted" by answering telephone inquiries from state or
Congressional staffs? state or federal program managers?

How will restricting the exchange of ideas and information between nonprofits and
program managers affect program quality, cost effectiveness, monitoring and
correction of defects?

With regard to restrictions on grantee participation in state rule-making, would
state planning processes developed under Executive Order 012372 that call for
grantee participation as members of the public provide adequate written approval
for such participation?

Apart from federal block grant and revenue sharing funds, does OMB intend to
require states to apply B33 to their nonprofit subgrantees?

Does OMB intend to abolish or modify current federal rules that now apply A-122 to
nonprofit 6ub-recipients of federal categorical "pass-through" funds? (eg 45 CFR
170.174 or 7 CFR 3015.193)

Will other OMB rules (eg, A-102, Attachment P) require states to audit federal
grantees subject to A-122? If so, how will states be reimbursed for them?

6. IMPACT ON MEMBERS OF NONPROFIT ORGANIZATIONS

Does B33 place restrictions on political advocacy by individual members of a
nonprofit organization apart from restrictions on their organization?

Apart from restrictions on communications with the public, may nonprofits claim
FFP for costs of:

- presenting "political topics" to members? How does OMB define this?

- attempting to affect opinions of members on governmental decisions?

Do the same rules apply to communications with grantee board members?

To what extent may members of an organization engage in political advocacy on its
behalf without "tainting" the organization itself? For example, could they talk to
government officials on behalf of the organization?

Do the same rules apply to grantee board members? to volunteers?

To comply with B33, must a grantee somehow document the private political advocacy
activities of organizational members, board members or volunteers on its behalf?

OMB questions, page 3

454

7 . EMPLOYEES

B33 disallows FFP if grantees "require or induce" employees to engage in political
advocacy, even on their own time.

Does "induce" mean something other than "require"?

Does "induce" include "peer- pressure"? Promotions? Awards?

May grantees claim FFP for salary costs of part-time workers who engage in
political advocacy on another job?

What evidence must grantees maintain to prove that employees engaging in political
advocacy on their own time were not "induced"?

8. CONSULTANTS AND SUBCONTRACTORS

Would cost-type subcontractors of federal grantees be subject to the same
political advocacy restrictions as grantees? If so: '

Would auditors also have to examine records of subcontractors?

What records would subcontractors be required to keep or furnish?

May grantees claim FFP for technical assistance by consultants who also engage in
political advocacy for others?

May grantees claim FFP for political advocacy conducted on their behalf by law
firms or other subcontractors?

Would a subcontract for political advocacy paid by a grantee from non-federal
funds taint the grantee or only that subcontract?

9. PUBLICATIONS

Would FFP be allowed for the costs of distributing the results of "nonpartisan
analysis" in a manner that attempts to affect public opinions on governmental
decisions? What criteria would OMB expect agencies and auditors to use in judging
whether the manner of distribution made such costs disallowable?

How would B33 apply to grantee newsletters containing political advocacy that only
go to employees? to board members? to organizational members?

Would FFP be allowed for the costs of distributing research reports that advocate
changes in public policy? Would there be any exceptions for distribution to review
panels? other members of the professional community?

10. MEETINGS, CONFERENCES, WORKSHOPS

May grantees claim FFP for costs of attending or holding a conference during part
of which:

- a Congressman or other public official advocated pending legislation?

- an employee engaged in political advocacy on his own time?

Would contract post offices in rural areas be tainted by political advocacy that
routinely ocurrs around their "cracker barrels"?

OMB questions, page 4

455

11. FACILITIES

Under OMB's proposal, grantees may not devote more than 5Z of building or office
space they occupy (including that occupied by an "affiliated organization") to
political advocacy.

Does this limit apply only to space occupied or to the entire building?

What is OMB's definition of "affiliated organization"? How does it differ from
the IRS code?

Would grantees be tainted by political advocacy occurring on their premises that
was conducted:

- by their landlords?

- by other organizations that share the same space?

- outside of working hours?

- on premises controlled by entities exempted from A-122 (eg, public schools,
federal buildings)?

12. EQUIPMENT

May grantees claim FFP for costs of renting equipment also rented by others for
political advocacy? If not, will rental companies have to keep separate
inventories of "untainted" equipment?

Would grantees be tainted by allowing others to use their equipment for political
advocacy? Even if fully reimbursed for operating costs (gas, electricity, etc.)?
If so:

May libraries claim FFP for coin-operated copy machines used by library
patrons to copy "political" documents?

May transportation grantees claim FFP for vehicles rented by others for
political advocacy?

13. ASSOCIATIONS

May grantees claim FFP for any costs of membership in an association:

- that engages in political advocacy as a "substantial organizational
purpose"? Apart from dues, what does OMB include under "costs of membership"?

- by documenting that its solicitation materials make no claim that it engages
in political advocacy? Or would grantees be required to document its political
advocacy expenditures?

Would member grantees be tainted by political advocacy conducted by their
association? by a privately funded member of it?

Would OMB regard a grantee as engaging in political advocacy if:

- it appeared in stationery or publicity "for identification purposes only"?

- its employees made "uninduced" contributions in response to solicitations
received at home? at work? What does OMB mean by "induce" in this context?

OMB questions, page 5

456

14. ACCOUNTING AND PAPERWORK BURDENS

Under B33, will it be sufficient for grantees to maintain records adequate to
prove merely that they have charged no political advocacy to their federal grants?
Or will they have the additional burden of maintaining records proving that they
engaged in no political advocacy using any funds?

For example, will grantee accounting systems be required to track all
non- federal funds, staff activities, use of space, telephones, inventory,
etc., as well as federal funds?

Current accounting standards emphasize adequacy of accounting for federal funds.
Does OMB believe that additional nonprofit accounting standards are needed to
assure compliance with B33? For example:

Grantees now log their long distance calls for cost allocation purposes. Would
B33 require them to log all local call6 as well?

Similarly, their employees now prepare time sheets needed to properly allocate
their work among various federal grants and contracts. Would B33 require
grantees to keep records on their after-hours activities as well?

How much does OMB estimate to be the added regulatory burden of such requirements?
Does OMB plan to issue a regulatory impact analysis? When?

1 5 . AUDITS

OMB is currently circulating a proposal to require "single audits" of grantee6
under Circular A-110. How would it relate to the proposed revision of A-122?

The current scope of grantee audits is usually limited to their federal funds.
Would B33 require auditors to examine their non-federal activities as well?

Current grantee audits examine transactions with respect to generally accepted
standards of germaneness to grant purposes and "materiality". Auditors focus on
transactions that depart from such purposes or that rise above such levels.

- How does B33 affect "materiality" levels?

- Would there be any transactions that are not "material"?

- Would auditors have to examine all grantee transactions or could they 6till
just examine random samples?

What "audit steps" does OMB propose for detecting political advocacy?

Does OMB regard as adequate the quality of current audits of federal grantees? How
would B33 affect the quality of such audits?

Does OMB estimate that B33 audits will cost more than current grantee audits? How
much more? Will this cause an increase in federal costs?

OMB questions, page 6

457

CATCH-122 REVISITED: REAGAN ADMIH1STKAT10N TIKKERS WITH "GAG RULE"

On Feb. 25, on the eve of Congressional hearings and under a mounting blizzard of
angry public comments, the US Office of Management and Budget (OMB) announced it
was "considering modifications" of its proposed ban on "political advocacy" by
nonprofit organizations receiving federal funds. But a report by the Congressional
Research Service (2/18/83) has seriously questioned whether OMB's basic proposals
are constitutional and a coalition of 250 national nonprofits that reviewed OMB's
"modifications" has renewed its request for President Reagan to withdraw the
entire proposal.

WHAT IS "CATCH-122"T

Nonprofits are audited regularly under OMB Circular A-122 ("Cost Principles for
Nonprofit Organizations"), which details costs chargeable to federal grants:
Federal funds may pay for a "fair share" of all costs incurred by grantees in
carrying out legitimate, grant- authorized activities.

A-122 also implements federal laws prohibiting use of federal funds for •
electioneering, legislative lobbying, or activities outside the 6cope of grants
and contracts. Other federal laws limit the amount of tax-exempt private funds
that may be used in legislative lobbying. But otherwise, all members, volunteers,
and employees of nonprofit organizations now have the same First Amendment rights
as other Americans to speak out, organize, and complain to the government--60 long
as they do it on their own time and with their own funds.

On Jan. 24, OMB proposed changing A-122 to ban all their "political advocacy" as
well, even using private funds . Under OMB's proposals (see 48 Federal Register
3348), nonprofit organizations would be banned from:

- contacting units of government at any level (unless officially invited)

- communicating government actions to members, interested people or the media

- joining associations that speak out for their communities and people they
serve.

To comply with OMB's proposal, nonprofits would have to pay for separate
"advocacy" offices, equipment and staff. Otherwise, federal auditors could force
them to repay all federal funds spent for legitimate activites of any person,
place or thing involved, however minimally, in "political advocacy." For example :
if a teacher gave parents meeting one night in a day-care center some materials on
pending day-care rules, the center might have to repay her entire annual salary
and the entire annual rent, utilities, etc. for the building, even if parents paid
for the materials.

OMB's proposals convert Circular A-122 into CATCH-122: Nonprofits with federal
funds would be forced to choose between giving up their livelihoods or their First
Amendment rights, under threat of bankruptcy.

OMB'S "MODIFICATIONS'' — MORE THAN A SMOKESCREEN?

Exemption for state and local contractors and grantees

OMB says it6 "proposals do not apply to state and local governments or their
contractors and grantees , or to hospitals, universities, or Indian tribes
(emphasis added). This is both misleading and inequitable: If political abuse of
federal funds is as widespread as OMB alleges, then it cannot justify exempting
the biggest recipients.

458

It it true that A-122 does not apply to subgranta of federal block grant or
revenue sharing funds, which OMB has already exempted from all federal cost
principles. But what OMB does not say is that nonprofit contractors and grantees
receiving federal "categorical pass-through" funds from state or local governmenta
would automatically be covered by A-122 through other federal rules linking "cost
principles" to type of fund recipient, rather than type of program (eg, 45 CFR
74.174). These rules apply OMB Circular A-87 to federal funds in state hands, but
trigger A-122 requirements whenever states 6ub-grant funds to nonprofits. OMB has
not proposed to 6trike down these other rules.

Exemption of "standard marketing activities"

This exemption would let military contractors and Rand Corporations continue
lobbying Congress and the Pentagon for additional defense contracts simply by
calling it "marketing," which belies OMB's initial claims of even-handed treatment
for all federally- funded organizations. It would apparently exempt all commercial
organizations and nonprofit contract research houses, leaving only the small
nonprofits still covered. Note.: Attachment C of A-122 exempts 30 large nonprofits
by name, to be covered by GSA procurement (ie, "marketing") regulations.

Exemption of contacts with "non-legislative" state and local officials

This is no improvement over OMB's initial proposals, which exempted contacts with
government officials necessary for carrying out a grant program, such as obtaining
a state license to operate or discussing use of grantee property with zoning
boards .

Most government decisions are "qua6i-legi6lat ive, " except for purely "ministerial"
functions of administrative officials. For example, city councils and public
service commissions have both administrative and legislative roles.

Exemption of "most" contacts with Executive branch officials

This gives capricious, life-and-death power over grantee6 to officials who are not
accountable to the electoral process: If they decide that a contact was
"inappropriate" or unwelcome, they could require the grantee to repay all federal
funds related to it (annual staff salaries, telephone bill6, etc.)

At the federal level, it is unclear whether officials of independent or regulatory
agencies would be exempted, which is no help to a handicap transportation project
that needs to contact the ICC to object to rules denying access to federal
highways.

Establishment of a waiver policy for "inadvertent" or "technical" violations

The danger here, as above, is selective enforcement. Politically favored
organizations would presumably have little trouble in proving "inadvertence," just
as big organizations now experience little trouble in persuading auditors on
lucrative long-term contracts to overlook "technical" violations.

Dues and membership in trade associations and "politically active" groups

For commercial organizations in trade aasociations, OMB assures that rules for
tax deductibility of such due6 will in no way be affected by the proposals." This
means that businesses may continue to charge their dues to federal taxpayers by
deducting them as "ordinary and necessary" business expenses.

For nonprofits, however, "the proposals merely prohibit the use of federal grant
and contract funds for the payment of such dues."

459

Exemption for providing information to trade associations and similar groups

This would apparently open a loophole in OHB ' s initial ban on providing "anything
of value" to organizations that engage in political advocacy as a "substantial
organizational purpose." It is designed to help certain trade associations for
whom information itself is of value and costly to produce (eg, trade secrets,
reports of crop production), but it is no help to "similar groups" of nonprofits
that depend on their members for cash contributions, volunteer assistance,
xeroxing, etc.

"Substantial" exemption of equipment usage

Since not all equipment would be exempt, substantial inequities could arise if,
for example, OMB exempts federally-funded equipment used by government contractors
(eg, shipyards, "mainframe" computers), w'aile covering equipment purchased or
obtained by federal grantees (eg, micro- computers).

OHB'S "MODIFICATIONS" WOULD STILL PROHIBIT MANY LEGITIMATE GRANTEE ACTIVITIES

How would organizations in your community be affected by A-122? Many currently
legitimate activities would still be banned as "political advocacy" under OMB's
"modified" proposals. If they received federal funds:

- Drug and alcohol abuse programs would be forbidden to advocate tougher laws
against dope peddlers or drunk drivers.

- Nonprofit children's groups could not help in lawsuits against illegal removal
of children from their parents.

- Agricultural organizations that pay for government research under cooperative
agreements could not use their own funds to circulate the research reports to
county officials.

- A church feeding elderly people could not use it6 cafeteria for a women's club
meeting on social security legislation.

- Veterans organizations might be barred from asking cities to install curb ramps
for wheelchairs if they accept free space in federal buildings.

- "Heals-on-wheels" programs for elderly shut-ins could not appeal to the city for
neighborhood crime watch or elderly protection programs.

- Home weatherization projects could not seek lower utility rates for low-income
or elderly people.

- Nonprofit halfway houses having trouble getting sites approved could not attend
city council hearings, unlike city-operated houses funded from the same federal
program.

- Theatre groups may be censored from presenting plays with "political" messages.

- Nonprofit clinic6 could not seek better children's immunization coverage from
county health departments, but hospital clinics could do so (and for-profit
clinics could deduct such lobbying as a business expense).

- Minority businesses with federal contracts could not attend chamber of commerce
meetings on pending federal jobs programs.

20-644 0—83 30

460

- Nonprofit bousing sponsors of projects in financial trouble would be barred from
public bearings on city CDBG plans.

- Nonprofit Bead Start centers could not contact school boards about better
programs for ex-Bead Start children, while srhool-opprat ed Bead Start centers
would not be restricted.

- Nonprofit water/sewer associations could not seek extensions of city sewer
lines.

- Nonprofit WIC centers could not object to putting junk food in mothers'
packages, but county-operated WIC centers would be exempt.

- Energy projects would be barred from seeking changes in tax codes to encourage
energy conservation.

OMB' S "MODIFICATIONS" FAIL TO MEET BASIC OBJECTIONS

A coalition of 250 national nonprofits has reviewed OMB's modifications and
concluded that the entire proposal should still be withdrawn :

- It is unnecessary: OMB has still presented no evidence that anti- lobbying
laws already enacted by Congress are failing to control alleged abuses of
federal funds by nonprofits.

- It is unworkable: OMB has still not explained why certain nonprofits should
be excluded from the open dialog over government policies at the very moment
they receive federal funds to carry them out.

- It is unconstitutional: OMB has still not justified imposing such far-
reaching and onerouE controls on the privately funded First Amendment
activities of nonprofits.

- It is unauthorized: Congress has passed no law against "administrative"
lobbying. OMB still lacks proper grounds to issue these proposals.

PUBLIC COMMENTS

OMB has indicated that it may issue revised proposals with another 45-day comment
period. In the meantime, the deadline for public comments is March 9. 1983 .
Comments should be addressed IN DUPLICATE to OMB with copies to your.
Congres6people :

Financial Management Division, OMB, Washington, DC 20503 (202/395-6823)

Bon. , US Bouse of Representatives, Washington, DC 20515 (202/224-3121)

Hon. , US Senate, ; Washington, DC 20510 (202/224-3121)

For more information, contact:

Shannon Ferguson, Rural America, 1900 M St., Washington, DC 20036 (202/659-2800)

461

Testimony of State Senator Michael A. 0' Pake/Pennsylvania
Before the House Committee on Government Operations
(Subcommittee on Legislation and National Security)
The Hon. Jack Brooks, Chairman
March 1, 1983

0MB Notice re Circular A-122/Federal Register January 24, 1983

In his classic study, Democracy in America (1835-39) ,
Alexis de Tocqueville observed that "The Americans of all ages,
all conditions and all dispositions constantly form associations
...associations of a thousand. . .kinds, religious, moral, serious,
futile, restricted, enormous, or diminutive. The Americans
make associations to... found establishments for education, to
send missionaries to the antipodes. Whenever at the head ,of
some new undertaking you see the government of France or a man
of rank in England, in the United States you will be sure to find
an association."

This propensity of Americans to join together in
associations to support a cause, air their views, and demand
government response, has grown stronger over the years, and is
seen in the proliferation of private, nonprofit charitable and
fraternal organizations which serve as vehicles for the public
expressions of their members.

A parallel phenomenon of the last half century would
merit de Tocqueville ' s comment were he alive today. The federal
and state governments have learned these private, nonprofit
special interest associations can economically, efficiently
and effectively carry out many needed social, educational,

462

service and research functions that otherwise would be
expected of government agencies, at greater cost. To encourage
such nonprofit ventures, federal and state governments have
provided tax incentives, and federal grants and contracts are
awarded to these nonprofits to do the work government eschews.
These grants and contracts annually total billions of dollars,
and are awarded to hundreds of thousands of nonprofits, large
and small.

Now, in the last month, the Office of Management and
Budget, through an innocuous-sounding proposal entitled "Cost
Principles for Nonprofit Organizations", is preparing to silence
the voices of these grass-roots organizations. Under the guise
of "sound management", OMB is moving to prevent nonprofits
which receive federal funds from speaking out on public policy
questions — even to their own members.

Thus, groups such as the United States Conference
of Mayors, the National Alliance of Business, the National
Savings and Loan League, the National Council of Senior Citizens,
and the National Retired Teachers Association, each of which
received substantial federal grant funds in 1982, would be
unable to state their views on the state of the economy, taxes,
interest rates. Social Security changes, educational benefits,
and other pressing social issues, without jeopardizing their
federal financial support. These, and thousands of other
smaller groups involved in human services, will be forced to
face the Hobson's choice of muzzling their members, or giving
up essential federal funding.

463

In my own experience, these regulations would have
denied me, as a State Senator, free and unlimited access to
valuable insight and expertise in any number of past instances:
when drafting our state Child Abuse statute, I relied on the
hands-on experience of a reknowned psychiatrist on the staff
of Children's Hospital in Pittsburgh, which nonprofit entity
receives federal research funding through the National Institute
for Health; and members of C.A.P.E. (Child Abuse Prevention Effort)
of Philadelphia provided unique insight. C.A.P.E. has received
at least one federal grant, and continues to contract with the
Children and Youth Services agency, through which flow federal funds.

When working on my legislative proposal which established
Victim/Witness protections in Pennsylvania, I received a considerable
amount of relevant information from both the Rape Crisis and
Domestic Violence Coalitions; both organizations draw down needed
federal dollars. And I relied on the research made available by
the Criminal Justice Section of the American Bar Association,
which receives some federal funding.

Other federally aided nonprofits which have proven
helpful to me in recent years include the National Council of
Jewish Women, and member agencies of the Juvenile Justice Coalition
of Philadelphia, on juvenile justice legislation; drug and
alcohol program staff, on drunk driving legislation; Catholic
Social Services on a variety of human service bills; and mental
retardation activists and prison reform advocates on Task Force
studies.

While the special interests of these nonprofits did
not necessarily prevail, their commentary nevertheless provided
a healthy dialogue which aided me in attempting to balance all
interests. To deny these nonprofits access to public policymakers,

464

is to deny public policymakers comprehensive information on
the impact of their decision-making. And to deny anyone, or
to deny any association a voice in the democratic process
is a very ominous step.

The proposed OMB policy should be abandoned because
it is unconstitutional , unnecessary , unfair , and unwise .

Proponents of the OMB policy present the subtle,
enticing argument that "commingling of federal grant (funds)...
with private political advocacy creates the appearance of federal
support for particular positions in public debate", and theirs
is nothing more than a "concern for protecting the free and
robust interchange of ideas".

Behind this facile facade lies the explicit political
goal articulated by Howard J. Phillips, Executive Director of
the Conservative Caucus, to "defund the left" by "eliminating the
power... of activist organizations which are working... to render
irrelevent the election returns".!

The problem with both the visible and hidden agendas of
the proponents is that the policy is blatantly unconstitutional .

More than a decade ago, in Perry V. Sinderman , the
U. S. Supreme Court declared, "For at least a quarter-century,
this Court has made clear that even though a person has no 'right'
to a valuable governmental benefit, and even though government
may deny him the benefit for any number of reasons, there are
some reasons upon which the government may not rely. It may
not deny a benefit to a person on a basis that infringes his
constitutionally protected interests — especially his interest
in freedom of speech."

1. "Defunding the Left", Rochelle Stanfield, National Journal
Aug. 1981, p. 1374

465

Twenty years ago, that same Court stated in
Sherbert V. Verner , that "Conditions upon public benefits
cannot be sustained if they so operate, whatever their purpose,
as to inhibit or deter the exercise of First Amendment freedoms."

Because the OMB policy conditions the benefits of
federal grants and contracts on the recipient's agreement to
forego "political advocacy" as defined by OMB, it inhibits,
deters and prevents the exercise of three critical First Amendment
freedoms: free speech, freedom of assembly, and the right of
citizens to petition their government for redress of grievances.

In addition to being unconstitutional, the proposed
policy is unnecessary . At present, the Internal Revenue Code
and other enabling laws-*- have explicit limitations on lobbying
activities by nonprofits, which threaten loss of their tax-exempt
status and access to continued federal funding if they "attempt
to influence any legislation through an attempt to affect the
opinions of the general public or any segment thereof". OMB's
rulemakers complain present law is cumbersome, because
separating money used to provide public services from the money
used for lobbying is difficult. Though difficult, it clearly is
not impossible. I am advised that at least five nonprofits in
the Philadelphia area have lost federal funding in the last two
years through enforcement of these restrictions.

Ironically, OMB does not propose to overcome this
perceived difficulty, since it claims that "the body of experience
in interpreting the Internal Revenue Code provisions. .. is expected

1. PL96-509 5227(c) Juvenile Justice and Delinquency Prevention
Reauthorization Act of 1980

466

to aid the interpretation of the proposed (OMB) revisions".
That claim itself seems ridiculous, since the OMB plan will
exacerbate any difficulties, by expanding the definition of
prohibited "political advocacy" beyond mere legislative lobbying,
and will forbid efforts by groups "to influence government policy
...through the regulatory process" of administrative agencies,
or in the courts "through litigation as amicus curiae " (friend
of the court) briefs.

Even though the proposal is unconstitutional and
unnecessary, the proponents assert it is at least eve r- handed ,
since similar policies, applicable to big defense contractors and
other monied groups, were simultaneously announced by the Department
of Defense. Nothing could be further from the truth. The, OMB
proposal discriminates against social policy-oriented nonprofits
in favor of powerful corporate interests. The large government
contractor can afford to set up a separate office and staff to
conduct its "political advocacy" while it continues to get huge
chunks of federal contract money to operate its business. But
the small, mental health nonprofit, with two or three staff
members, a two-room rented office, one telephone and a desk-top
copying machine, simply cannot afford to set up a separate
fictional entity to comment on government plans affecting mental
health clients. It is simply unfair to shut off the cries of
the disabled, the poor and the elderly, who cannot travel to
their state capitol or to Washington to protest government
administrative, legislative or judicial action.

467

Finally, the OMB proposal is unwise . In the first
place, it would force federal auditors to become policemen of
policy, changing their role from financial analysts to detectives
of discourse. Auditors would have to determine not only what
federal dollars were spent where, but why they were spent, and
whether any federal money was expended on "political advocacy".
Such a wide-open standard is subject to abuse by potentially
vindictive government agency personnel, and cannot help but have
a chilling effect on the people who work for and belong to
nonprofit organizations.

The rulemakers at OMB appear to view "political advocacy"
as dirty words. Journalist Godfrey Sperling, Jr. comments, however,
in his "Washington letter" column of February 23, 1983 in The
Christian Science Monitor , that "...politics actually is the
process ... the debate that goes on constantly among the American
people on a multitude of issues."

While those of us in elective office would be the first
to concede that the democratic process can be messy, noisy and
time-consuming, we surely must agree with Sperling's conclusion
that, "...if it is to work there must be a perpetual interchange
of public opinion. Thus politics, in the sense of continuing
debate, must go on."

I am convinced the cumulative effect of OMB ' s "gag order"
would be to cut the torrent of information we public officials now
receive from nonprofit groups to a small, ineffective trickle.
OMB would silence the debate. I therefore call on Congress to
prevent implementation of these regulations because they are
unconstitutional , unnecessary , unfair , and unwise , and they would
weaken our noble democratic experiment.

468

['--> Planned Parenthood'
ll"* Federation of America, Inc.

Washington Office

1220 19m Street N.W.
Suite 303

Washmqton, DC 20036
(202) 785-3351

Testimony of:

PAYE WATTI.ETON

PRESIDENT

PLANNED PARENTHOOD FEDERATION OF AMERICA, INC.

House Government Operations Committee
Subcommittee on Legislation and National Security

March 1, 1983

Planned Parenthood Federation of America and its 190 local
affiliates in 43 States are proud of their role in public affairs,
as advocates on behalf of reproductive health care for millions of
Americans. We feel that it is essential that Planned Parenthood
with its 20,000 volunteers and staff nationwide, and other family
planning service providers be allowed to continue speaking out in
the interest of all the people we serve.

Virtually all Planned Parenthood affiliates have public advocacy
activities of some kind, staffed either by volunteers or professional
staff, backed up by a Public Affairs Committee composed entirely of
volunteers from the affiliate's Board of Directors. These volunteers
typically represent all corners of the local community. The public
advocacy activities of the Affiliate are supervised by the affiliate's
Executive Director. We believe it is essential for the individual
with direct responsibility for the administration of all our service
programs to be actively involved in the public advocacy functions
as well. (Under the current system, the Executive Director's salary
is paid from privately raised funds for activities, including
advocacy, not related to the federal grant.) Under the current 0MB
proposal, that would be impossible if the Executive Director receives
as little as 5 percent of his/her salary from federal funds.

Planned Parenthood, I believe, is in a unique position to comment
on the use of allocations of grant and non-grant costs. During 1981,
Planned Parenthood and other family planning organizations who
receive federal family planning grants experienced an unprecedented
number of program audits by both the Department of Health and Human
Services Inspector General and the General Accounting Office. It
is important to note that both GAO and the HHS Inspector General
were concerned only with the use of federal funds, not privately
raised monies. In these audits two main subjects were addressed:

469

did family planning clinics use federal funds for abortion related
activities or for lobbying?

On both counts, and by both agencies, family planning clinics
were cleared of any serious misuse of funds. That there was no
finding of a pattern of misuse by any family planning service providers
completely contradict's OMB's stated premise for their proposed
revision to cost principles. I would urge you all to read the GAO's
Report on Family Planning Grantees. The Report Number's 82-106,
September 24, 1982.

I would also note that GAO, in testimony before the House
Government Operations Committee earlier this week stated that their
findings and recommendations in the family planning audits should
not be construed as a basis for OMB's drastic proposal.

The OMB proposal would be extremely harmful to Planned Parenthood
through its vast expansion of the definition of public advocacy. We
feel it is absolutely essential for Planned Parenthood affiliates
to be able to conduct a free exchange of views and information with
state and local officials and with members of the local community
with it's funds raised from private contributers . There are currently
statutory restrictions on the use of federal funds for lobbying.
The OMB regulations, however, far exceed these requirements. They
impose restrictions on the use of non-governmental funds in excess
of OMB authority, and far beyond any measures enacted by Congress.

As health care providers, Planned Parenthood affiliates have
played an important role in the total well-being of local communities
across the nation. They, along with other service delivery
organizations, must not be kept out of the sphere of public debate
simply by virtue of their receipt of federal dollars.

Planned Parenthood has also been active in the federal rulemaking
process, something that would be barred by OMB's proposal. Last
year Planned Parenthood affiliates, in coalition with one hundred
other national youth serving groups, played a major role in generating
public interest around a governmental proposal that would have
required federally funded clinics to notify parents when teenagers
are provided prescription contraceptives. More than 120,000 public
comment letters were generated. At the local level, affiliates
volunteers were instrumental in encouraging state, county, and local
health officials to write comment letters on the proposed rule. In
the end, 40 State Health Departments and the District of Columbia
wrote official letters of comment, all of them opposing the rule.
Hundreds of county and local health officials wrote similar letters.
This work, funded entirely by private contributions, is an example

470

r~r

of the effective communication between our public affairs volunteers
and other local organizations and governments.

The important point for our discussion today, though, is that,
organizations that have day-to-day experience in providing services
must have some voice, some opportunity to participate in the debate
about so radical a change in the program's method of operation. The
public-private partnership that Brian O'Connell of Independent Sector
has spoken of and that the Reagan Administration touts so loudly,
cannot exist with private organizations silenced.

In closing, I would like to quote from the February 17 editorial
of the Minneapolis Star-Tribune:

"In a country that thrives on debate and dissent, the
administration's proposal to throttle its critics is out
of place. The plan would save no money and solve no
problem. It would only restrict the kind of communication
that helps the government do its job well. So long as
they don't use federal money to do it, the groups that
help the country's needy citizens should be able to speak
out whenever they want, about whatever they want."

471

United Cerebral Palsy Associations, Inc.
Governmental Activities Office
Chester Arthur Building, Suite 141
425 I Street N.W.
Washington, DC. 20001

(202)842 1266

March 2, 1983

John L. Lordon

Chief

Financial Management Branch

Office of Management and Budget

Washington, D.C. 20503

Dear Mr . Lordon :

RE: January 24, 1983 Proposed Regulations
Revising Circular A-122, "Political Advocacy"
of Nonprofit Recipients of Federal Assistance

United Cerebral Palsy Associations, Inc., one of America's larger voluntary
health agencies, wishes to join the chorus of concern objecting to OMB's proposed
January 24th regulations. Founded in 1949 by parents of children with cerebral
palsy, UCPA's 1981 national office budget was S4.833 million, an amount entirely
derived from non-governmental sources. Our combined affiliate income of $142,922
million including $101,526 million from state and local government grants and
contracts provide a variety of direct services to persons with severe disabilities
and their families. UCPA affiliation policies prohibit any government funds
from being shared with the national organization. Only privately raised funds
are assessed by the national organization. At present your proposed regulations
do not appear to apply to us. But we join the many others in the nation who
object to your proposals. We have seven major concerns with your proposals.

• Consistency

UCPA, an Internal Revenue Code Section 501 (c) (3) organization, already
is governed in terms of its lobbying activities. We support the 1976 IRC
amendments which establish an expenditure test to limit the lobbying activities
of charitable organizations. We suggest that A-122 rules parallel as closely
as possible these IRS rules. Dual standards which are substantively different
are a regulatory burden and undermine administrative efficiency of both federal
agencies and nonprofit organizations.

• Need

OMB has not documented evidence of abuse by the nonprofit community. Anti-
lobbying laws for recipients of federal funds are already in place. OMB has not
documented why generally acceptable accounting techniques are not adequate. Why
issue substantial new regulations in an area with no documented abuse? It seems
odd for an Administration committed to deregulation to develop a new regulatory
process when no abuse has been demonstrated.

1 1 ONARO M GOI DENSON

JACK HAUSMAN
Vld CMAII1WAN

NINA EATON
VIC( GIMIIUMN

M0VVAR0 C MILLER. JR
I Ml MIIINI

WILLIAM fiERENBERG. MO
VICI IHLSIDI NT
MCPICAl AFFAIHS

EARL M CUNERD
i ucunvc oinrcroR

472

• Authority

It appears to UCPA that the January 24th regulations go well beyond
Congressional intent and exceed the regulatory authority of OMB. These proposals
clearly go beyond any current restrictions which Congress has placed in the
HHS appropriations measures. OMB has regulatory authority to formulate general
cost allocation rules. We remind OMB of the 1936 Supreme Court case,
Manhattan General Equipment Co. vs Commissioner of Internal Revenue , whereby the
Court observed that the executive branch "is not the power to make law" but,
instead, is only "the power to adopt regulations to carry into effect the will
of Congress as expressed by statute."

• Reasonableness/Arbitrariness

Can not OMB obtain the results it is seeking without requiring the extreme
segregation of activities the proposals entail? By requiring grant activities
and an organization's lobbying activities to be placed in separate buildings,
the result is higher costs to both the government and the recipient. The
historical common practice of in-kind matching would be completely eliminated.

Brian O'Connell, President, Independent Sector, has described a discussion
he has had with Michael Harowitz, OMB's General Counsel, whereby Mr. Harowitz
has interpreted the January 24th rules as prohibiting an executive director from
supervising both an agency's grant activities and its lobbying activities. Is
it reasonable for an executive director, by government regulation, to neglect
his responsibilities to his Board of Directors and completely delegate absolute
authority of one area to another staff member? UCPA believes your proposals
are both unreasonable and unnecessarily arbitrary.

• Prematurity

We remind OMB that the Supreme Court has heard arguments and is now
considering, in Taxation Without Representation vs Donald Regan , a case involving
the government's authority to regulate a variety of nonprofit associations and
their lobbying activities. We suggest that OMB wait to issue proposed
regulations to insure consistency with the Court's findings.

• Subjectivity

Prohibitions on activities such as "attempts to influence governmental
decisions through an attempt to affect the opinions of the general public or
any segment thereof" are highly subjective. A public administration principle
taught throughout the nation is that rules must be uniform and precise enough .
so that they can reasonably be implemented in similar ways by different officials
of government. Vague phrases lend themselves to misuse by ideologically
motivated federal officials. We oppose any rule which is so subjective that it
probably can not be uniformily and consistently applied.

• Vagueness

The regulation does not define what constitutes federal funds. We understand
that OMB has determined that block grant funds distributed by state and local
government to nonprofits are not covered by these rules. But what about other

473

federal funds distributed to state and local government which are then granted

or contracted to nonprofits? Many, maybe even most, state legislatures reappropriate

federally received funds and these state laws clearly maintain that these are state

funds. Does your regulation apply to pass-through grants or contracts? This

is a highly important issue to organizations, such as UCPA, which are membership

associations with affiliation agreements.

As OMB moves to issue revised proposed regulations during the next several
weeks, we hope you will respond to the seven concerns expressed in this letter.
Thank you for considering our views.

Sincerely,

£.. QAJSu^c**

E. Clarke Ross, D.P.A.
Director

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474

Congressional Research Service
The Library of Congress

^-ANALYSIS OF POTENTIAL LEGAL ISSUES WHICH MAY 3E RAISED CONCERNING 0MB
PROPOSED AMENDMENT TO CIRCULAR A-122, REGARDING POLITICAL ADVOCACY
BY NONPROFIT GRANTEES OF THE FEDERAL GOVERNMENT

Jack Maskell
Legislative Attorney
American Law Division
February 18, 1983

BOSTON PUBLIC LIBRARY

3 9999 05706 6993