APPROPRIATIONS

The designation by the government or an individual of the use to which a fund of money is to be applied. The selection and setting apart of privately owned land by the government for public use, such as a military reservation or public building. The diversion of water flowing on public do main from its natural course by means of a canal or ditch for a private beneficial use of the appropriator.

Cherokee Nation of Oklahoma v. Leavitt

When the federal government contracts with private vendors for products and services, it promises to pay the vendors in full if all terms of the contract are met. However, during the 1990s, the federal government asserted that it was not bound to honor agreements that it had negotiated with American Indian tribes to pay in full contract-support costs for healthcare services provided by the tribes. The government contended that Congress had failed to appropriate sufficient funds to pay the tribes and that the government therefore was not legally required to find funds from other sources to fulfill the agreements. The U.S. Supreme Court, in Cherokee Nation of Oklahoma v. Leavitt, __ U.S.__, __S.Ct.__, __L.Ed.2d __ 2005 WL 464860 (2005), rejected these arguments, holding that where Congress had appropriated sufficient and unrestricted funds to pay the contracts, the government could not avoid paying the contracted costs on the grounds that there were insufficient appropriations.

The dispute over payment of health-services costs involved both the Cherokee Nation of Oklahoma and the Shoshone-Paiute Tribes of the Duck Valley. Both tribes signed contracts with the Department of Health and Human Services (HHS) to provide health services that the Indian Health Service, a federal agency, normally supplied. Each contract contained an "Annual Funding Agreement" in which the federal government agreed to pay contract-support costs. The Indian Self-Determination and Education Assistance Act (25 U.S.C.A. §450 et seq.) authorized the contracts and defined "contract support costs" as other reasonable costs that a federal agency would not have incurred but which a tribe would incur "to ensure compliance with the terms of the contract and prudent management." These costs could include indirect administrative costs, direct costs such as workers' compensation insurance, and certain start-up costs. When the two tribes presented bills for these costs, HHS refused to pay the full amounts. It contended that Congress had not appropriated enough money to pay the bills in full. The tribes pursued administrative and judicial remedies in two separate actions. The U.S. Court of Appeals for the Tenth Circuit found in favor of HHS, while the U.S. Court of Appeals for the Federal Circuit ruled in favor of the tribes. Based on these contradictory rulings, the Supreme Court agreed to resolve the issue.

The Court, in a unanimous decision (Chief Justice William Rehnquist did not participate due to illness), ruled that the government had to pay the costs agreed in the contract. Justice Stephen Breyer, writing for the Court, noted that HHS did not dispute that it had promised to pay the contract support costs or that it had failed to make these payments. HHS argued instead that it was legally bound by its promises to pay only if Congress had appropriated sufficient funds. In this case, Congress had not done so. However, Justice Breyer pointed out that HHS had admitted that it would have been legally bound to pay if these had been ordinary government procurement contracts. One additional key fact was that Congress regularly appropriated far more than the contract amounts in dispute to the Indian Health Service to carry out the Indian Self-Determination Act. Justice Breyer found telling the fact that these congressional appropriations did not include any restrictions on their use. It was a "fundamental principle" that when Congress does not impose restrictions "a clear inference arises that it does not intend to impose legally binding restrictions." Therefore, as long as there are sufficient appropriated funds within a government unit, the government "normally cannot back out of a promise to pay on the grounds of "insufficient appropriations."

HHS contended that the Indian Self-Determination Act created a special type of contract between the federal government and a tribal government that differed from standard government procurement contracts. The tribal governments should have known that the contracts that HHS entered into with a number of tribes might not be payable in full from the congressional appropriation. Moreover, the tribal governments had taken over the health care functions of the Indian Health Service, a federal agency, and therefore the tribes should be treated like an agency. Clearly, federal agencies do not have the legal right to receive promised funds from Congress. In case of a shortfall, a tribe would be entitled to some, but not all, of its costs under the contract.

Justice Breyer disagreed with this reading of the statute . He concluded that the language of the statute strongly suggested that Congress "meant to treat alike promises made under the Act and ordinary contractual promises (say, those made in procurement contracts)." The statute used the word "contract" 426 times to describe the government's promise; its use, understood in general contract law, meant that a breach of the agreement gave to the tribes certain legal remedies. Apart from these issues, Justice Breyer could not find any language in the statute that supported the government's view that contracts with the tribes under this statute were to be treated specially. He also rejected the government's reliance on several other statutory provisions that suggested that HHS had some discretion to deny payments when funds were unavailable. In Breyer's view, these provisions were similar to those governing procurement contracts. In such cases, contractors are entitled to payments. Therefore, the government was obligated to pay the tribes according to the terms of the contract.