Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
11-10-2004
Local 1647 v. FLRA
Precedential or Non-Precedential: Precedential
Docket No. 03-4553
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-4553
AMERICAN FEDERATION OF GOVERNMENT
EMPLOYEES, AFL-CIO, LOCAL 1647,
Petitioner
v.
FEDERAL LABOR RELATIONS AUTHORITY
On petition for review of an order of the
Federal Labor Relations Authority
0-NG-2697, 59 FLRA No. 51
Argued: October 1, 2004
Before: ROTH and CHERTOFF Circuit Judges, and
IRENAS, * Senior District Judge.
(Filed November 10, 2004)
MARTIN R. COHEN (Argued)
AFGE, Suite 117
10 Presidential Blvd.
*
Honorable Joseph E. Irenas, Senior United States District Judge
for the District of New Jersey, sitting by designation.
1
Bala Cynwyd, PA 19004
Counsel for Petitioner
DAVID M. SMITH, Solicitor
WILLIAM R. TOBEY, Deputy Solicitor
DAVID M. SHEWCHUK, Attorney (Argued)
Federal Labor Relations Authority
1400 K Street, N.W., Suite 300
Washington, D.C. 20424
Counsel for Respondent
OPINION OF THE COURT
CHERTOFF, Circuit Judge.
Petitioner, Local 1647 of the American Federation of
Government Employees (“AFGE” or the “union”), proposed a
contractual provision that would have allowed employees at the
Tobyhanna Army Depot (“TYAD”) to be reimbursed from the
TYAD Army Working Capital Fund (“AWCF”) for personal
expenses they sustained as a result of cancelled annual leave.
Respondent Federal Labor Relations Authority (“FLRA”) held
the proposal was nonnegotiable because it would require an
impermissible expenditure of congressionally appropriated
funds. The FLRA specifically rejected the AFGE’s sole
argument, which was that most of the money in the AWCF does
not consist of appropriated funds because the AWCF is in large
part financed through collections from customers to whom
TYAD sells services. Petitioner sought review.
Resolution of this issue turns on the definition of
appropriated funds. The question of when agency funds are
defined as “appropriated” has important legal implications going
to the heart of Congress’ power to control the financial activities
and expenditures of the Executive Branch.
For the reasons set forth in this opinion, we determine
that AWCF’s money is properly considered appropriated funds,
and we will affirm the decision of the FLRA.
2
I.
TYAD is the Defense Department’s largest full-service
electronic maintenance and repair facility, and is located in
Tobyhanna, Pennsylvania. Civilian employees are represented
by AFGE. TYAD is financed by a defense working capital fund
– the TYAD AWCF. Defense working capital funds like the
AWCF are continually replenished with money paid by outside
federal agencies and private businesses for the purchase of
defense agency goods and services. Additionally, defense
working capital funds receive direct annual appropriations from
Congress when required. See, e.g., National Defense
Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136, §
302, 117 Stat. 1392 (2003).
In 2002, the union and TYAD management discussed a
proposed amendment to their collective bargaining agreement
that would have provided for reimbursements of any
documented financial losses suffered by an employee because of
a cancellation of annual leave. Under the proposal, an employee
whose leave was cancelled by TYAD would be reimbursed for
forfeited airline tickets, hotel deposits, and the like. The
proposal specifically suggested that the reimbursement would be
“from other than appropriated funds.” This presumably referred
to the assumption that AWCF revenues from services performed
for other agencies and businesses were not appropriated funds,
and therefore not subject to the legal requirement that
“[a]ppropriations shall be applied only to the objects for which
the appropriations were made except as otherwise provided by
law.” 31 U.S.C. § 1301(a).
Ultimately, TYAD rejected the union proposal on the
ground that it was inconsistent with the law, because payment of
personal costs is not within the scope of TYAD’s authorized
appropriations.1 The union appealed to the FLRA. Before the
Authority, the AFGE conceded that the statute governing the
TYAD AWCF does not authorize using appropriated money to
reimburse employees for personal expenses lost because of
1
Under 5 U.S.C. § 7117(a)(1), “the duty to bargain in good faith
. . . [applies] to the extent not inconsistent with any Federal law. . ..”
3
government action. (App. 3-4, 83-84.) But, the union argued,
the AWCF is a revolving fund, meaning that its outflows of
money are replenished by income from billings to the TYAD’s
customers. Thus, the union urged, although appropriated funds
could not be used to pay for personal out-of-pocket losses,
TYAD could draw on its sales revenues because these were not
appropriated funds.2
The FLRA upheld the determination that the AFGE’s
reimbursement proposal was improper. The Authority reasoned
that as a revolving fund the AWCF should be treated, as a matter
of law, as an “on-going or continuing appropriation.” (App. 4.) 3
Given the union’s acknowledgment that the AWCF statute did
not authorize appropriated funds to be spent for personal
reimbursements, the FLRA concluded that the union’s proposal
would violate 31 U.S.C. § 1301(a), and therefore was not a
proper subject for collective bargaining under 5 U.S.C. § 7117.
We have jurisdiction over this petition for review under 5
U.S.C. § 7123(a). We review the FLRA’s decision under the
standards of the Administrative Procedure Act. See 5 U.S.C. §
7123(c) (incorporating 5 U.S.C. § 706). Because the question
here is whether the FLRA decision is an improper interpretation
of statutes governing the AWCF, our review is plenary, and we
follow the agency’s interpretation only insofar as its reasoning is
“sound.” Ass’n of Civilian Technicians, Tex. Lone Star Chapter
100 v. FLRA, 250 F.3d 778, 782 (D.C. Cir. 2001).
2
After briefs were submitted and at oral argument, the AFGE
sought to take the position that even if the AWCF funds were
appropriated, the governing statute would allow use of that appropriated
money to reimburse lost personal expenses. Letter pursuant to Rule
28(j), September 30, 2004. Because that was not the union’s position
before the Authority, we decline to allow the union to switch horses for
this appeal. See 5 U.S.C. 7123(c) (“No objection that has not been urged
before the Authority, or its designee, shall be considered by the court,
unless the failure or neglect to urge the objection is excused because of
extraordinary circumstances.”).
3
The FLRA opined that a revolving fund is created not to step
outside the appropriations process, but as a means by which TYAD was
relieved of the ordinary requirement that appropriated funds be spent in
the same fiscal year. (App. 4.)
4
II.
A.
One of the fundamental powers lodged by the
Constitution in the Congress is control over the expenditure of
public money. The Appropriations Clause provides:
No money shall be drawn from the Treasury,
but in Consequence of Appropriations made by
Law; and a regular Statement and Account of the
Receipts and Expenditures of all public Money
shall be published from time
to time.
U.S. Const. Art. I, § 9, Cl. 7.
For purposes of the appropriations power, public money
is defined broadly. As Justice Story observed in his
Commentaries, it includes “all the taxes raised from the people,
as well as revenues arising from other sources.” 2 Joseph Story,
Commentaries on the Constitution of the United States § 1348
(3d ed. 1858), quoted in Office of Pers. Mgmt. v. Richmond, 496
U.S. 414, 427 (1990). By law, public money includes money
from any source such as taxes, customs and user fees, and other
proceeds of government agency activities. See 31 U.S.C. § 3302
(Miscellaneous Receipts Act). The purpose of the Clause is to
place authority to dispose of public funds firmly in the hands of
Congress, rather than the Executive. Richmond, 496 U.S. at
425-27; Cincinnati Soap Co. v. United States, 301 U.S. 308, 321
(1937). This not only allows Congress to guard against
“extravagance,” Story, supra, but hands the Legislative Branch a
powerful tool to curb behavior by the Executive. See generally
Kate Stith, Congress’ Power of the Purse, 97 Yale L.J. 1343
(1988). Without congressional permission, therefore, no money
may be paid by the Treasury. Richmond, 496 U.S. at 427-28;
Reeside v. Walker, 52 U.S. (11 How.) 272, 291 (1850) (alternate
holding).
Congress itself may choose, however, to loosen its own
reins on public expenditure. So, for example, although Congress
ordinarily requires that appropriations be spent within a single
5
year, it may also authorize appropriations that continue for a
longer period of time. See Nat’l Ass’n of Reg’l Councils v.
Costle, 564 F.2d 583, 587 & n.10 (D.C. Cir. 1977). Congress
may also decide not to finance a federal entity with
appropriations, thereby giving rise to what is described as a
nonappropriated fund instrumentality or NAFI. See United
States v. Hopkins, 427 U.S. 123, 125 n.2 (1976); 10 U.S.C. §§
4779(b), 9779(b). NAFI entities are “arms of the [federal]
government,” Standard Oil Co. v. Johnson, 316 U.S. 481, 485
(1942), but their “monies do not come from congressional
appropriation but rather primarily from [their] own activities,
services, and product sales.” Cosme Nieves v. Deshler, 786 F.2d
445, 446 (1 st Cir. 1986).
What distinguishes a NAFI from other federal entities that
are financed through the normal appropriations process? Under
the case law, the test is not simply whether the organization in
question receives payments from its own activities, but whether
the organization is “denied by the Government any use of
appropriated monies.” L’Enfant Plaza Props, Inc. v. United
States, 668 F.2d 1211, 1212 (Ct. Cl. 1982); see also Hopkins,
427 U.S. at 125 & n.2. Since the power to appropriate belongs
to Congress, see Richmond; Cincinnati Soap, 301 U.S. at 321,
Congress must make the decision whether to allow or deny a
federal instrumentality appropriated funds. Congress may
impose the restriction that the instrumentality be entirely self-
supporting, without any appropriated funds, in which case it is a
NAFI. See, e.g., Core Concepts of Florida, Inc. v. United States,
327 F.3d 1331 (Fed. Cir. 2003) (Federal Prison Industries is a
NAFI); Furash & Co. v. United States, 252 F.3d 1336 (Fed. Cir.
2001) (Federal Housing Finance Board is a NAFI). Or,
Congress may direct an entity to be self sufficient, but leave
open the possibility that appropriations may be applied. See, e.g.,
L’Enfant Plaza, 668 F.2d at 1212 (financial self-sufficiency does
not establish NAFI where historically appropriations were
received and are allowed under the statute for the future);
Slattery v. United States, 53 Fed. Cl. 258 (Fed. Cl. 2002) (FDIC
Bank Insurance Fund is not a NAFI because Congress expressed
willingness to appropriate funds, although it never has).
Whether an agency or agency fund is a NAFI is determined by
looking at the entirety of its financial wellspring, not by parsing
6
its revenue stream to determine which moneys came from the
Treasury and which from customer payments. Indeed, an entity
is not treated as a NAFI even if all of its money flows from its
own activities, and even if appropriated funds have never been
used, so long as “under the agency’s authorizing legislation
Congress could appropriate funds if necessary.” L’Enfant Plaza,
668 F.2d at 1212.
As our review of authority suggests, most of the analysis
of the line between appropriated funds and NAFIs has been
undertaken by the Federal Circuit, the United States Court of
Federal Claims, and its predecessor courts. That is
understandable, since under the Tucker Act, 28 U.S.C. § 1491,
judgments against the United States are paid from appropriated
funds, so that the claims courts’ jurisdiction often depends on
whether the defendant to a claim is a NAFI. In considering
whether an organization’s funds are appropriated or not, the
Federal Circuit has adopted a clear-statement test, presuming
that funds disbursed by an entity should be treated as
appropriated unless there is “a clear expression by Congress that
the agency was to be separated from general federal revenues.”
L’Enfant Plaza, 668 F.2d at 1212; see also Core Concepts, 327
F.3d at 1334; Research Triangle Inst. v. Bd. of Governors of the
Fed. Reserve Sys., 132 F.3d 985, 988 (4 th Cir. 1997) (applying
same test).
While that “clear expression” standard arises in the
context of Tucker Act jurisprudence, we think it accurately
reflects the broader principle that one should not lightly presume
that Congress meant to surrender its control over public
expenditures by authorizing an entity to be entirely self-
sufficient and outside the appropriations process. There is a
powerful reason for this assumption. At bottom, Congress’
decision to treat an agency’s funds as appropriated or
nonappropriated is not simply a selection of the anticipated
source of the funds, but a political decision about how tightly
Congress wants to supervise the spending decisions of the
agency and whether it wants to stand behind the agency with the
full faith and credit of the Treasury. See Slattery, 53 Fed. Cl. at
273 (holding the FDIC Bank Insurance Fund appropriations
because Treasury stands behind Fund as last resort). When
Congress establishes a NAFI, it insulates the public fisc but also
7
may surrender some degree of control over the entity’s
spending.4 Otherwise, Congress reserves its traditional full
measure of appropriations power in funding an executive
agency. For this reason, the courts have sensibly treated agency
money as appropriated even when the agency is fully financed
by outside revenues, so long as Congress has not clearly stated
that it wishes to relinquish the control normally afforded through
the appropriations process. And, in fact, Congress itself has
signaled how jealously it guards the appropriations prerogative
by imposing a similar “clear statement” rule regarding when a
court may find that an appropriation has been made. 31 U.S.C. §
1301(d) (“A law may be construed to make an appropriation . . .
only if the law specifically states that an appropriation is made . .
. .”).
B.
The TYAD AW CF is a defense working-capital fund
authorized by statute, 10 U.S.C. § 2208. AFGE argues that
under the statute, funds like the AWCF are at least in part
comprised of nonappropriated funds. Since, as we have
explained, Congress must determine whether instrumentalities
are supplied with appropriated or nonappropriated money, this
question turns on interpretation of § 2208, applying the clear
expression and other principles we have described.
Both sides agree that § 2208 authorizes the Secretary of
Defense to establish working-capital funds as “revolving funds,”
i.e., funds in which income from operations is applied to finance
operations without regard to fiscal year limitations. (App. 2-3.)
AFGE argued before the FLRA that, to the extent the AWCF is
largely composed of collections from sales, those collected
moneys are not appropriated and are therefore available to pay
for purposes other than those specified in the appropriation.
TYAD argued, to the contrary, that any revolving fund is by
definition just an appropriation that continues past the fiscal
year. The Comptroller General evidently agrees with this
4
Of course, Congress may impose separate spending restrictions
on a NAFI. See AINS, Inc. v. United States, 56 Fed. Cl. 522, 540 n.29
(Fed. Cl. 2003).
8
characterization. 4 U.S. Gen. Accounting Office, Principles of
Federal Appropriations Law, 15-18 to 15-128 (2d ed. 2001)
(noting that one of the foundational rules of a revolving fund is
that it is an appropriation). And the FLRA adopted the view of
the Comptroller General and the TYAD, which is that revolving
funds in their entirety are per se “treated as on-going or
continuing appropriations.” (App. 4.)
We do not agree with the FLRA’s blanket generalization
that revolving funds are always appropriations. But we also
disagree with AFGE that whether revolving funds are not
appropriated depends on whether some or all of the revenues
flow from sales or services to third parties. Instead, we think the
correct rule is that the characterization of a government fund as
appropriated or not depends entirely on Congress’ expression,
whatever the actual source of the money and whether or not the
fund operates on a revolving rather than annualized basis.
We turn first to the position of the FLRA. Its decision
was ostensibly supported by statements in United Biscuit Co. of
America v. Wirtz, 359 F.2d 206, 212-13 & n.14 (D.C. Cir.
1965), and a long line of Comptroller General decisions, see
MDB Communications, Inc. v. United States, 53 Fed. Cl. 245,
248-49 (Fed. Cl. 2002). But these authorities are either
distinguishable or unpersuasive.
In United Biscuit, the court considered whether purchases
for military commissaries were made with appropriated funds for
purposes of deciding the applicability of the Walsh-Healey
Public Contracts Act, Pub. L. No. 74-846, 49 Stat. 2036 (1936). 5
The court determined that the commissaries were financed
through a Treasury Department “stock fund,” in which
appropriated moneys were spent to purchase supplies and then
recouped by the stock fund when the commissaries sold supplies.
5
As explained in United Biscuit, the Walsh-Healey Public
Contracts Act is designed to force suppliers and manufacturers doing
business with the government to observe minimum labor and wage
standards by the insertion in government contracts of certain
representations and stipulations. 359 F.2d at 208. Violation of these
representations and stipulations renders the contracting party liable for
damages, and, possibly, for blacklisting from government contracts for
a three-year period. Id.
9
Examining the context of the specific statute establishing that
funding arrangement, the court accepted the broad view of the
Comptroller General that “establishment of a revolving fund,
replenished by moneys from the public, constitutes an on-going
appropriation which does not have to be renewed each year.”
359 F.2d at 212. But while that statement may have been correct
and necessary in the particular context of the commisaries’
“stock fund,” it is dicta – and likely incorrect dicta – with respect
to other, different types of revolving funds. The particular
structure of the stock fund in United Biscuit mandated that
annual appropriations pay for the commissaries’ purchases of
goods, and that the revenue from sales return to Treasury. See
AINS, Inc. v. United States, 56 Fed. Cl. 522, 540 n.29 (Fed. Cl.
2003) (distinguishing United Biscuit). But other revolving funds
are designed to stand alone financially, and therefore do not
constitute appropriations. Hopkins, 427 U.S. 123 (post
exchanges); Furash, 252 F.3d at 1336 (the Federal Housing
Finance Board); AINS, 46 Fed. Cl. at 522 (the Mint). Properly
read, therefore, the holding of United Biscuit is not that all
revolving funds are appropriations, but that it depends on
whether the particular revolving fund is financed – or is
permitted to be financed – by appropriated funds. That is
consistent with our own test.
The FLRA also put considerable weight on the Court of
Federal Claims, decision in MDB Communications, and the line
of Comptroller General decisions on which it relies. MDB
Communications held that a “revolving fund is, in substance, a
continuing or permanent appropriation.” 253 Fed. Cl. at 248.
But the FLRA disregarded the Federal Circuit’s later decision in
Core Concepts, which expressly held that the Comptroller
General’s “view that all revolving funds are appropriations is
misplaced [in the context of the NAFI doctrine].” 327 F.3d at
1338. MDB Communication’s generalized holding about
revolving funds, therefore, has been effectively overruled by
Core Concepts.
Finally, the FLRA invoked support from a line of
opinions by the Comptroller General which assert that revolving
funds are necessarily appropriated funds based on the interplay
between the Miscellaneous Receipts Act, 31 U.S.C. § 3302(b) –
which generally requires money received by the government to
10
be deposited in the Treasury’s general fund – and the
Appropriations Clause, U.S. Const. art. I, § 9, cl. 7. 4 U.S. Gen.
Accounting Office, supra, at 15-81 to 15-128. Essentially, the
Comptroller General argues that because Congress normally
requires all receipts to flow into the Treasury under § 3302(b),
and because all appropriations from the Treasury must be made
by Congress under the Appropriations Clause, it follows that all
revolving funds are appropriations.
But, as the court in Core Concepts correctly noted, the
Comptroller General’s premise is flawed. The Miscellaneous
Receipts Act need not apply to all government revenues.
Congress may choose to treat some agency revenues outside of
the general Treasury fund by statutorily authorizing those
revenues to be deposited into a special fund. Core Concepts,
327 F.3d at 1338. Having done so, Congress has taken the
revenues out of the appropriations cycle. There is, as we have
already explained, no Appropriations Clause impediment to
Congress relinquishing its own appropriations authority. See
Cincinnati Soap, 301 U.S. at 321.
Finally, the Comptroller General’s view is inconsistent
with Supreme Court precedent. The Comptroller General
defines a revolving fund as “a permanent authorization for a
program to be financed, in whole or in part, through the use of
its collections to carry out future operations.” 4 U.S. Gen.
Accounting Office, supra, at 15-81 to 15-128. This definition
comprehends the funds that traditionally support the military
post exchanges. See 10 U.S.C. §§ 4779(b), 9779(b). But in
United States v. Hopkins, the Supreme Court described these
post exchange moneys as nonappropriated funds, based on the
particular statutes authorizing the funds. 427 U.S. at 125 & n.2.
The fact that the Supreme Court has recognized that collected
moneys can (but need not) be nonappropriated funds completes
the demolition of the Comptroller General’s position that all
revolving funds derived wholly or in part from collections are
necessarily appropriated funds.
In short, United Biscuit and Core Concepts reaffirm our
principle that each agency fund, whether or not “revolving,”
must be separately examined under the congressional “clear
expression” test to see if it consists of appropriated or
nonappropriated money. We disagree with the FLRA’s
11
acceptance of the view that the TYAD AWCF revolving fund is
necessarily appropriated money.
But that does not mean we adopt the argument of the
AFGE that because the AWCF is replenished from customer
fees we should treat the AWCF (or some part of it) as
nonappropriated. Under the approach we have outlined, what
matters is how Congress’ wishes to treat government revenue,
not the source of the revenue. We examine the particular
funding arrangement of the AWCF, therefore, to see whether
there is a “clear expression by Congress that it intended to
separate the agency from general federal revenues.” Furash, 252
F.3d at 1339. If so, it would be a NAFI. But in the case of the
defense working-capital funds, Congress has actually expressed
the contrary view: that the defense working-capital funds were
meant to be supported by appropriated funds.
Section 2208(d), which authorizes the working-capital
funds, expressly provides that “such amounts may be
appropriated for the purpose of providing capital for working
capital funds as have been specifically authorized by law.” 10
U.S.C. § 2208(d). Subsection (c) mandates that “[w]orking-
capital funds shall be . . . reimbursed from available
appropriations or otherwise credited for . . . costs.” Thus, the
statute suggests that Congress intended to infuse the working-
capital funds with appropriated moneys. And, as noted above,
Congress has in fact regularly supplemented the capital in the
defense working capital funds with direct appropriations. See,
e.g., National Defense Authorization Act for Fiscal Year 2004,
Pub. L. No. 108-136, § 302, 117 Stat. 1392 (2003)
(appropriating $632,261,000 for military working-capital funds);
Bob Stump National Defense Authorization Act for Fiscal Year
2003, Pub. L. No. 107-314, § 302, 116 Stat. 2458, 2506 (2002)
(appropriating $387,156,000 for military working-capital funds);
National Defense Authorization Act for Fiscal Year 2002, Pub.
L. No. 107-107, § 302, 115 Stat. 1012, 1047 (2001)
(appropriating $1,656,396,000 for military working-capital
funds).
Undoubtedly, therefore, the TYAD AW CF is not a NAFI.
Not only has Congress expressly indicated that the working-
capital fund may be financed through appropriations, but it has
done so repeatedly. Under the “clear expression” test, and the
12
line of appellate decisions which we have discussed, the moneys
in the AWCF are legally appropriated funds.
The AFGE nevertheless advances two arguments in
support of its claim that the AW CF is exempt from the statutory
restriction on the use of appropriations. First, the union observes
that at least some of the money is received from customers, and
it urges us to segregate these and treat them as nonappropriated
funds. The uniform rule, however, is that the character of an
agency’s funding is defined as a whole. Slattery, 53 Fed. Cl. at
258. The reason is fundamental. As we have explained, what is
at stake in the characterization of agency funds is not merely an
accounting of the source of revenue, but a decision about the
degree of congressional supervision of agency spending. Where
Congress has not “clearly expressed” its decision to create a
NAFI, therefore, it has determined that the agency’s spending
should be subject to the usual appropriations authority even if
the Treasury is not the source of all or even any of the funds.
AFGE’s suggestion that one culls specific money based on
whether generated from the Treasury or outside revenues is
inconsistent with this conceptual underpinning of the NAFI
doctrine, and the judicial precedent.
Second, the AFGE relies on Department of Defense
internal accounting rules that separately categorize cash by
source: operations, investments, and appropriations. But
regulations or rules promulgated by the Executive on its own
cannot affect the character of an agency’s funds. The purpose of
the Constitution’s Appropriations Clause is to constrain the
Executive and assure Congress’ control over expenditures.
Congress may choose to relinquish its appropriations authority in
specific instances by establishing NAFIs or continuing
appropriations, but that is the choice of Congress. Here,
Congress has chosen not to give up appropriations authority over
the defense working-capital funds. To say that the Defense
Department can, on its own, carve out an area of
nonappropriated funding would create an Executive prerogative
that offends the Appropriations Clause and affects the
constitutional balance of powers. This we decline to do.
Accordingly, we believe that the FLRA’s decision that the
TYAD AWCF consists of appropriated funds was correct, albeit
on reasoning somewhat different than that adopted by the
13
Authority. 6 The petition for review will be denied.
6
We offer no opinion on the AFGE’s belated argument, see supra
note 2, that expenditure of appropriated funds to compensate for lost
personal expenses is permissible. That contention can be raised, if
appropriate, someplace else. See generally ACT v. FLRA, 370 F.3d 1214
(D.C. Cir. 2004).
14