Federal Government Corporations: An Overview (2024)

Context

The federal government has employed government corporations to achieve policy goals for over a century. Among Members of Congress, the executive branch, and the scholarly community, interest in the government corporation option, and variations on this class of agency, has increased in recent decades.¹

In the typical contemporary Congress, several bills are introduced to establish government corporations. At the time of publication of this report, two bills had been introduced in the 112^th Congress to improve U.S. infrastructure by establishing government corporations—H.R. 404 and S. 652. Similarly, in the 111^th Congress, government corporations bills included ones that would have created an Indian Development Finance Corporation (H.R. 1607 ), a Green Bank (H.R. 1698), and a National Infrastructure Development Bank (H.R. 2521).

At least three factors may contribute to the interest in government corporations. First, the restrictive character of the federal budget encourages agencies to develop new sources of revenue (e.g., outsourcing services to the private sector and to other agencies) and to attempt to avoid increasing outlays.² Second, experience suggests that it is politically easier for corporate bodies to be exempted by Congress from the federal government's general management laws (e.g., the Freedom of Information Act and employee compensation restrictions) than it is for traditional agencies. Finally, the corporate concept appears to many, correctly or otherwise, to be supportive of the "New Public Management" that emphasizes entrepreneurship, risk-taking, and private sector practices in federal administration.³

The continuing interest in the government corporation prompts questions as to their legal character, their utility vis-à-vis traditional agencies, and their limitations as units of governmental institutions. A government corporation is not always an the optimal administrative entity for achieving governance objectives. There are times when it may be an appropriate choice and times when it may not. Understanding the unique character of government management, based as it is upon tenets of public law, provides guidance in weighing these choices.⁴

The Government Corporation: Contested Definitions

What is a federal government corporation, and what are the essential characteristics of a government corporation?

As defined in this report, a federal government corporation is an agency of the federal government, established by Congress to perform a public purpose, which provides a market-oriented product or service and is intended to produce revenue that meets or approximates its expenditures. By this definition, there are 17 entities that are government corporations.⁵

The U.S. Code does not provide a single definition of the term "government corporation." Title 5 of the U.S. Code defines a "government corporation" as "a corporation owned or controlled by the Government of the United States" (5 U.S.C. 103).⁶ Meanwhile, the Government Corporation Control Act ((GCCA) 31 U.S.C. 9101-10) states that the term "government corporation" means "a mixed-ownership Government corporation and a wholly-owned government corporation." It then lists 28 entities—some, like the Pennsylvania Avenue Development Corporation, now defunct—as being "government corporations" for the purposes of chapter 91 of Title 31.

In addition to the enumeration of corporations provided in the GCCA, there have been several other listings of corporations available, each different and based upon the definition employed by the compiler. Corporations cover the spectrum from such large, well-known corporations as the United States Postal Service and the Federal Deposit Insurance Corporation to such small, low-visibility corporate bodies as the Federal Financing Bank in the Treasury Department and Federal Prison Industries (UNICOR) in the Justice Department.

The number of federal corporations is in moderate flux. New corporations are established from time to time (e.g., the Valles Caldera Trust in 2000),⁷ and existent ones are dissolved (e.g., the Rural Telephone Bank in 2008).⁸

Government corporations should not be confused with quasi governmental entities, such as government-sponsored enterprises (GSEs). A GSE (e.g., Fannie Mae) is a privately owned, federally chartered financial institution with nationwide scope and lending powers that benefits from an implicit federal guarantee to enhance its ability to borrow money. ⁹ GSEs are important institutions worthy of separate analysis, but they are not discussed, except in passing, in this report.¹⁰ Unlike government corporations, with GSEs and other quasi governmental entities, the legal and political lines of accountability can be ambiguous.¹¹ In 1996, for instance, the Office of Personnel Management (OPM) created the United States Investigation Services Corporation as an employee stock-ownership plan (ESOP), an entry into the quasi government category that sparked debate regarding its status and authority.¹²

Evolution of the Federal Government Corporation

Historically, the federal government has been involved in few commercial enterprises. There were some early instances of the federal government participating in otherwise private corporate enterprises on a shared ownership basis, most notably the first and second Banks of the United States. This practice came into question, however, as a consequence of a Supreme Court ruling in 1819.¹³ From that time to today, the federal government has tended to avoid sharing ownership with private entities.

The first time the federal government acquired a corporation outright occurred in 1903, when the Panama Railroad Company was purchased from the French Panama Canal Company.¹⁴ Since then, a number of corporate bodies have been established as part of the federal government, with growth in that number tending to come in spurts and generally in response to emergencies. The first large-scale use of the corporate option accompanied the mobilization for World War I.¹⁵ Later, the Depression of the 1930s fostered numerous corporations (e.g., the Reconstruction Finance Corporation, and the Tennessee Valley Authority).¹⁶ Finally, World War II prompted the establishment of additional federal corporations. After the passing of each of these emergencies, many of the corporations that dealt with them were abolished or absorbed into the permanent executive branch agencies.

In 1945, partly in response to the proliferation of corporate bodies created for the war effort, Congress passed the Government Corporation Control Act (GCCA; 59 Stat. 841; 31 U.S.C. 9101-9110). The act standardized budget, auditing, debt management, and depository practices for corporations. Notwithstanding unusual provisions that may be present in their enabling statute, government corporations remain "agencies" of the United States,¹⁷ and are therefore subject to all laws governing agencies, except where exempted from coverage by provisions of general management laws.¹⁸

The GCCA is not a general incorporation act such as is in effect in the states. The charter for each federal government corporation is the separate enabling legislation passed by Congress. The GCCA also does not offer a general definition of what constitutes a government corporation. It simply enumerates the organizations covered by the act.

Characteristics of a Government Corporation

No two federal government corporations are completely alike. However, there are sufficient commonalities among the several corporations, that it is possible to make some generalizations about their authorities, organization, mission, and behavior.²²

Legal Status

Government corporations, no matter what function they perform or how "private" they may appear to the public or to themselves, are agents of the state subject to constitutional limitations.²³ As the Supreme Court concluded in the 1995 Lebron case, a government corporation has certain inherent legal characteristics that cannot be shed simply by legislative language or by corporate fiat.²⁴ The nature of the function performed (e.g., managing a railroad) has no effect upon its governmental character. The governmental and private sectors are fundamentally separate and distinct, with the distinctions based largely in legal theory, not economic theory.²⁵ This understanding is essential to recognizing both the potentialities and limitations of the government corporate concept. The government corporation remains governmental in character until Congress determines it shall be fully private, thereby coming under private law.

As a general proposition, the attorney general is vested with central control over the litigation to which the U.S. government is a party.²⁶ Various statutes recognize that the attorney general is the chief legal officer for all departments and agencies. However, in an uneven pattern over the years, exceptions have been permitted to this central authority. The independent regulatory commissions, for instance, have some independence (although the degree of independence varies considerably from commission to commission) in their litigation authority.²⁷ While the Justice Department has consistently favored central coordination of litigation, this view has been difficult to maintain in practice. With the relatively small staff of the department and its understandable reluctance to become responsible for routine litigation, there has been a trend toward awarding greater authority and flexibility to the departments and agencies in their legal affairs. With respect to government corporations, though, often their enabling legislation assigns them a legal personality distinct from that of the United States. Most are subject to, and may initiate, civil suits. Government corporations, being agencies of the United States, have their employees come under the limited waiver of immunity provided in the Federal Tort Claims Act (FTCA).²⁸

Distinguished public administrator Harold Seidman notes: "As a body corporate, a government corporation has a separate legal personality distinct from that of the United States. A corporation, therefore, does not enjoy the traditional immunity of the United States from being sued without its consent." Generally, a corporation is provided authority "to determine the character and the necessity for its expenditures, and the manner in which they shall be incurred, allowed and paid." Some corporations may borrow funds through the Federal Financing Bank of the Treasury Department.²⁹

In practical terms, the purpose of permitting corporations to sue and be sued in their own name is to enable a private business to contract with a government corporation under the assurance that if something goes amiss, it can go to court to settle the matter. With a regular government agency, however, a contractual dispute must normally go through a laborious process in the Court of Claims; if the contractor wins, he must wait for an appropriation; the Departments of Justice and Treasury, the Office of Management and Budget (OMB), the President, and both houses of Congress may become involved in the claim. With the government corporation, however, this process is simplified, and when a contractor prevails, he can usually obtain a prompt settlement.

Budget and Finance

The budget process is a useful management tool for planning as well as for maintaining accountability. Regular agencies of the executive branch, with few exceptions, are subject to uniform rules and regulations with respect to the budgets. Both the President and Congress use agency budgets as management tools. Government corporations, on the other hand, are exempt either individually or collectively from many executive branch budgetary regulations.³⁰ These exemptions are predicated, for the most part, on the idea that with the corporate structure, consumers of corporations' products and services, rather than the general taxpayer, are the principal source of revenue.

The GCCA, as amended in 1982 (96 Stat. 1042), provides that each wholly owned government corporation shall prepare and submit to the President a "business-type budget"

in a way and before a date the President prescribes by regulation for the budget program. This budget program shall contain estimates of the financial condition and operation of the corporation for the current and following fiscal years and the condition and results of operations of the last fiscal year. Further, it shall contain statements of financial condition, income and expense, and sources and uses of money, an analysis of surplus and deficit, and additional statements and information to make known the financial condition and operations of the corporation, including estimates of operations by major activities, administrative expenses, borrowings, the amount of U.S. Government capital that will be returned to the Treasury during the fiscal year, and appropriations needed to restore capital impairment." (31 U.S.C. 9104)

The objective of the budget program is to permit the corporation sufficient financial flexibility to carry out its activities. The President, after review and revision, submits these budget programs to Congress with the executive branch budget. Under the Chief Financial Officers Act of 1990 (CFOA), government corporations must submit to Congress annual management reports, which are to include statements of financial position, operations, and cash flows, a reconciliation to the budget report of the government corporation (if applicable), and a statement on internal accounting and administrative control systems.³¹

Traditional agencies of the United States receive the preponderance of their financial support from funds appropriated by Congress. Government corporations, on the other hand, generally receive most, if not all, their funds from users of their services. Thus, the latter relationship has a business character in which it is the obligation of the corporate body to provide services as long as the buyers are willing to pay. This being the case, revenues, expenditures, and even personnel will tend to fluctuate according to consumer demand.

Location and Governance

The location, structure, and governance of government corporations varies greatly. Corporations have been located in executive departments (e.g., the St. Lawrence Seaway Development Corporation in the Department of Transportation), or assigned independent status (e.g., the Export-Import Bank). Government corporations have been structured so that they are but financial entities whose employees are actually employees of the parent agency (e.g., the Federal Financing Bank in the Department of the Treasury and the Commodity Credit Corporation in the Department of Agriculture).

There is no one form of governance necessarily associated with government corporations. Whether a government corporation is best managed by a full-time board (e.g., TVA, formerly),³⁴ a chief executive officer selected by a part-time board and responsible to it (e.g., TVA currently), a part-time board consisting of Cabinet-level officials of other agencies (e.g., Pension Benefit Guaranty Corporation),³⁵ a mixed board of governmental and private appointees (e.g., Overseas Private Investment Corporation), or a single administrator responsible to a department secretary, and ultimately to the President (e.g., Government National Mortgage Association, "Ginnie Mae"), is an open question. There are positives and negatives to the various options for corporate governance.

A board of directors is the trademark of a government corporation, according to many lawmakers and attorneys. Marshall Dimock, an academic writing in 1949, argued that a board of directors was considered an essential element for an "authentic" government corporation. "Being a separate and distinct entity, headed by its own board of directors, the corporation is inherently better able to succeed than the ordinary department of government."³⁶

A few years later, Harold Seidman challenged the view that a board of directors was an essential and necessarily desirable element for a government corporation. Dimock's view, he asserted, was based on an inappropriate borrowing of state practice by the federal government. State incorporation laws require boards of directors for private corporations to insure representation where ownership is held by more than one party. In government corporations, under this reasoning, because ownership resides in the government alone, there is no inherent need for a board of directors.³⁷ Government corporations, Seidman pointed out, have existed and operated without boards of directors. A board of directors may well be found advisable and useful under some circ*mstances, but, Seidman said, it is not the sine qua non of a government corporation.³⁸

Whether or not a board of directors is essential or desirable for a government corporation, the fact is that all but two federal government corporations presently have boards of directors. The two exceptions are Ginnie Mae and the St. Lawrence Seaway Development Corporation. In a study published in 1981, the National Academy of Public Administration was critical of boards of directors in general:

We believe that this arrangement, borrowed from the private corporation model, has more drawbacks than advantages and that in most cases the governing board would be better replaced by an advisory board and the corporation managed by an administrator with full executive powers. A governing board may cut or confuse the normal lines of authority from the President or departmental secretary to the corporation's chief executive officer. With an advisory board, the secretary's authority to give that officer policy instruction is clear, as is the officer's right to report directly to the secretary and to work out any exemptions from or qualifications of administration or departmental policies and practices which the corporation requires.³⁹

There is little doubt that a board of directors, particularly a part-time, "outsiders" board, is a "buffer" between the corporation's top executive and political officials, including the President. Whether such a buffer is a desirable feature in the overall administrative system, however, is a question subject to debate. Notably, it is also argued that corporation board appointments are patronage plums for the White House since the jobs are not generally demanding.

The effectiveness and utility of boards is dependent upon a number of factors: the coherency of the enabling legislation, the conceptual integrity and soundness of the program itself, and the number and quality of membership. Large boards (comprising more than 12 members), for instance, may experience difficulty in making decisions. The play of internal factors, such as the size of the board, the primary loyalties of board members (whether to the corporation or to an outside constituency group), and the relationship of the board to the corporate management all also have their place in the managerial equation.

Oversight

There is, at present, little central management agency oversight or supervision of government corporations as a category of agency in the executive branch. Nor is there any central unit charged with designing government corporations from the perspective of presidential or central management interests.⁴⁰ Government corporations today are largely perceived as discrete entities, each with its own political and administrative requirements, and each with its own route and degree of political accountability. Individual corporations come under scrutiny from time to time by OMB and Congress, or more precisely, a congressional committee responsible for oversight. More often than not, the immediate impetus for the oversight follows from indications that a corporation is operating at financial risk or there is an appearance of wrongdoing.

The current absence of systematic oversight of corporations as a class runs counter to the intentions of the sponsors of the GCCA. The Bureau of the Budget (BOB), predecessor organization to OMB, was instrumental in the passage of the GCCA, and created a separate office to oversee the formation, and monitor the operation, of government corporations on behalf of the President. During the 1960s, this specialized staff function atrophied until at some point in the 1970s it is fair to conclude that there was little remaining central executive staff capacity to provide information, expert advice, or oversight of government corporations or to develop and implement consistent policies governing their formation, authorities, and operations.⁴¹

Government corporations are not considered by OMB to be a category of organization to be supervised collectively. OMB, in support of its position, contends:

The responsibility for oversight of government corporations was not changed by the OMB 2000 reorganization. That is, government corporations will continue to be reviewed by the Resource Management Office (RMO) which has responsibility for the functional area most closely associated with the corporation's mission.... OMB does not review government corporations separately from other government organizations that perform similar functions.⁴²

The executive branch treatment of management responsibilities respecting government corporations as a class of organization tends to place additional burdens on Congress and its committees to determine if the corporations are respecting the provisions of the general management laws (e.g., the National Environmental Protection Act, 42 U.S.C. 4321).

One corollary of limited central management oversight of government corporations is the lack of answers to fundamental issues regarding when and how government corporations ought to be created and utilized. There are at least two schools of thought respecting the proper use of the government corporation option relating to its structure, authority, and financial systems. One school holds that government corporations, including agencies called corporations but which do not perform commercial activities, should be encouraged, provided maximum policy and financial autonomy, and be subject to such oversight as is appropriate for other agencies and instrumentalities in the same policy field. The legal responsibilities of the corporation should be located in its enabling statute.

The position of the second school is that government corporations should be established only when appropriate criteria and standards, developed by a central management agency, are met. Such standards should be reflected in a national incorporation law and apply to all proposed and functioning corporate bodies properly defined. Government corporations should be considered to be part of the executive branch, but with recognition of their distinctive needs and oversight requirements as a category of institutions.

Government Corporations as Transition Organizations

The government corporation concept may be considered a useful alternative to privatization of some agency, or it may be employed as a transition step toward eventual full privatization.⁴³ Our interest here is limited to the corporation as a transition option. The principal utility of the transitional government corporation is that it can demonstrate marketability and asset value, critical elements in any successful privatization venture.

An early successful example of the government corporation concept as a transition vehicle involved Conrail. Conrail was created by Congress as a government corporation in 1976 from the remnants of seven private, bankrupt railroads. It took some 10 years and an investment of $8 billion by the federal government to bring Conrail up to industry standards before entertaining a reasonable expectation that the railroad would be attractive to private investors.⁴⁴ The federal government received approximately $2 billion from the sale, but the real payoff was that the northeastern region of the country was once again provided a viable freight rail system. The transition period as a government corporation was necessary to develop a record as a potentially profit-making venture prior to a successful privatization (divestiture) effort.⁴⁵

More recently, the U.S. Enrichment Corporation (USEC) has completed its transitional process toward full privatization, with mixed results. The USEC, until 1993 a regular agency in the Department of Energy (DOE), operated uranium enrichment plants in Kentucky and Ohio. In the 1950s, the plants produced highly enriched uranium (HEU) for defense purposes. Times changed and the United States was successfully challenged by new international entrants into the market.

The Energy Policy Act of 1992 (P.L. 102-486; 106 Stat. 2776) established the U.S. Enrichment Corporation as a wholly owned government corporation. The general intent of the legislation was to "privatize" the two plants and let them compete in the world market. A privatization plan was delivered by the USEC to the President and Congress in 1995. The plan suggested that there were two primary methods of corporate divestiture: an initial public offering (IPO) and a merger or acquisition with another corporation or group of corporations.⁴⁶ After considerable discussion, the IPO option was selected, as it had been with Conrail.

The IPO of stock was completed on July 28, 1998, and raised an estimated $1.9 billion for the federal government. The USEC transition process highlighted, however, one of the perennial problems in privatization efforts. Congress may intend a corporation to be private, but it also may want the corporation to continue to be involved in public policy implementation. In this instance, Congress wanted the corporation to participate in implementing a foreign policy objective, which was to purchase at above market rates a substantial amount of Russian enriched uranium otherwise destined for Russian weapons. Under the HEU agreement, the USEC received enriched uranium from Russian nuclear weapons and, in addition to its payment for the material, returned an equivalent amount of natural (unenriched) uranium to Russia to sell on the world market. This arrangement, from the corporation's perspective, was not viable and in October 1999, the USEC solicited Congress for "relief."⁴⁷

Another characteristic of a private corporation, legally organized and defined as such, is the right to cancel a program or withdraw from an activity if it is not deemed in the fiduciary interests of the shareholders. To the consternation of DOE officials, such a decision was reached recently by the USEC board of directors. One of the assets transferred from the DOE to the USEC in the divestiture was the right to commercialize a new enrichment technology called "atomic vapor laser and isotope separation" (AVLIS), a technology in which DOE had invested over $2 billion. On June 9, 1999, the board of directors of the USEC determined that AVLIS was not commercially viable and canceled the program. The board's decision made manifest the fiduciary distinctions between a government and private corporation.⁴⁸

The federal government may, for whatever reason, choose to directly divest itself of a commercial activity or asset and not follow the transition corporation option to establish its value in the market. Although a transition corporation had been recommended by an outside study,⁴⁹ the Department of Energy determined to directly divest itself of the California fields of the Elk Hills National Petroleum Reserves.⁵⁰

Conclusion

The government corporation form of federal agency is a useful option to consider when establishing or reorganizing an agency with revenue potential. It is helpful to bear in mind, however, that there is no general provision in law that defines what, precisely, government corporations are. When writing the GCCA, Congress and the executive branch simply viewed the various corporate bodies, and defined them by enumeration, rather than by required characteristics. This relatively unstructured approach has meant that some corporate bodies (e.g., the U.S. Postal Service) are not included in the GCCA enumeration, whereas other bodies, arguably non-corporate in function and authority (e.g., the Corporation for National and Community Service) are listed.

There is little managerial oversight at present of government corporations as an institutional category by either the President or Congress. What oversight there is tends to be corporation-specific. In the case of Congress, corporations are assigned to committees of subject-matter jurisdiction. A GAO report recommended that corporations properly require both subject matter and management oversight, and that the GCCA should be reconstituted to establish in law the characteristics of various types of corporate bodies.⁵¹

Government corporations may be viewed as permanent agencies to perform a continuing governmental function (e.g., the Federal Deposit Insurance Corporation); a temporary agency (e.g., the Pennsylvania Avenue Development Corporation); or a transition agency to facilitate the process whereby a governmental agency or program is divested and transferred to the private sector (e.g., the U.S. Enrichment Corporation). These options indicate the flexibility of the government corporation concept and may provide models for extending the corporate organization to other appropriations-funded agencies (e.g., the U.S. Patent and Trademark Office and the U.S. Mint). Both the latter agencies and their programs meet the basic criteria for a government corporation and suggestions to this effect have been made.

The future of government corporations as a category of federal organization appears generally bright although they are not widely understood in executive management circles. The need for the executive branch and Congress to develop new organizational structures that take into account both the public law requirements of governmental status, and the flexibility that properly accompanies corporate bodies dependent upon revenues for services may increase.⁵² The managerial quality of the law establishing a corporation, may be a critical variable in determining the success or failure of that enterprise. If the conceptual basis of the law establishing a corporation or economic assumptions therein are faulty, as was allegedly the case with the Synthetic Fuels Corporation in the late 1970s, a government corporation may become a liability to the executive branch and face a short tenure.⁵³ On the other hand, if a federal government corporation is designed to conform with public law, governmental management principles, and sound economics, a corporate agency may provide a creative instrument to promote the public policy objectives of elected officials.

Although it has been the purpose of this report to emphasize the distinctive characteristics of federal government corporations, it is important to conclude with a statement of their shared characteristics with other federal agencies. The mission of both regular, appropriations-financed agencies and of government corporations is the same, to implement the laws passed by Congress.

Appendix. Federal Government Corporations

1. Commodity Credit Corporation	(15 U.S.C. 714)
2. Export-Import Bank	(12 U.S.C. 635)
3. Federal Crop Insurance Corporation	(7 U.S.C. 1501)
4. Federal Deposit Insurance Corporation	(12 U.S.C. 1811)
5. Federal Financing Bank	(12 U.S.C. 2281)
6. Federal Prison Industries (UNICOR)	(18 U.S.C. 4121)
7. Financing Corporation	(12 U.S.C. 1441)
8. Government National Mortgage Corporation	(12 U.S.C. 1717)
9. National Railroad Passenger Corporation (AMTRAK)	(49 U.S.C. 241)
10. Overseas Private Investment Corporation	(22 U.S.C. 2191)
11. Pension Benefit Guaranty Corporation	(29 U.S.C. 1301)
12. Presidio Trust of San Francisco	(16 U.S.C. 460bb)
13. Resolution Funding Corporation	(12 U.S.C. 1441(b))
14. St. Lawrence Seaway Development Corporation	(33 U.S.C. 981)
15. Tennessee Valley Authority	(16 U.S.C. 831)
16. U.S. Postal Service	(39 U.S.C. 101)
17. Valles Caldera Trust	(16 U.S.C. 698-v4)