New York State Department of Social Services, DAB No. 1601 (1996)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: New York State Department of Social Services
Docket No. A-96-175
Decision No. 1601

DATED: October 4, 1996

DECISION

The New York State Department of Social Services (NYSDSS)
appealed the decision of the Director, Division of Cost
Allocation (DCA), Department of Health and Human Services
(HHS), disallowing $600,181 in federal financial
participation (FFP) claimed by NYSDSS under several
federal grant programs. 1/ The disallowed costs
related to the lease of the Ten Eyck building in Albany,
New York, which was occupied by NYSDSS, for the period
April 1, 1995 to March 31, 1996. The amount disallowed
represented the difference in FFP between lease costs
claimed by NYSDSS, which included amounts attributable to
interest costs, and a use allowance to which DCA
determined NYSDSS was entitled.

In New York State Dept. of Social Services, DAB No. 1336
(1992), in subsequent summary decisions based on DAB No.
1336, and in New York State Dept. of Social Services, DAB
No. 1590 (1996), the Board upheld the disallowance of
interest costs related to the lease of the Ten Eyck
building which were claimed by NYSDSS for earlier
quarters. 2/ In its Notice of Appeal in the case now
before us, New York wrote that it was appealing this
disallowance on the grounds set forth in all of its prior
appeals concerning this issue. Notice of Appeal at 1.
It represented that it would not file additional briefs
and would not object to the Board issuing a summary
decision in this case. Id. In acknowledging the appeal,
the Presiding Board Member proposed to issue a summary
decision unless DCA objected to that procedure within
fifteen days. The Board has received no objection from
DCA.

In DAB No. 1336 and DAB No. 1590, the Board concluded
that interest costs for the Ten Eyck Building were
unallowable under the plain terms of Office of Management
and Budget (OMB) Circular A-87 and that only a use
allowance was permissible for the costs of space in that
building. 3/ The decisions addressed two different
versions of OMB Circular A-87. Each of these versions is
applicable to a portion of the disallowance period at
issue in this case. The 1980 version of the Circular was
in effect during the first four months of the
disallowance period (April through August 1995) while the
1995 version was in effect during the last eight months
of the disallowance period (September 1995 through March
1996).

In DAB No. 1336 and the subsequent summary decisions, the
Board considered the allowability of interest claimed for
the Ten Eyck building under OMB Circular A-87 as it was
written prior to September 1, 1995. At that time, OMB
Circular A-87 provided that interest costs were
unallowable, except that the rental cost of space (which
includes interest) in publicly owned buildings newly
occupied on or after October 1, 1980 was allowable if
certain conditions were met. See OMB Circular A-87,
Attachment B, D.7 and C.2.a. The Board determined
that, during the period covered by the claims at issue in
DAB No. 1336 and the subsequent summary decisions, the
effect of the cited provisions was to make the interest
claimed unallowable since the Ten Eyck building was
occupied prior to October 1, 1980. The Board also
considered and rejected NYSDSS's arguments that the lease
cost limitation set forth in the Circular was
unreasonable.

In DAB No. 1590, the Board considered the allowability of
interest claimed under the revised version of OMB
Circular A-87. The September 1995 revision to OMB
Circular A-87 changed the prior rule allowing interest
for buildings "occupied" on or after October 1, 1980,
providing instead that interest for buildings "acquired,
constructed, fabricated, reconstructed or remodeled" on
or after October 1, 1980 is allowable. OMB Circular A-
87, Attachment B, 26 (published at 60 Fed. Reg. 26484,
26499 (May 17, 1995)). The Board ruled that interest
costs associated with the lease of the Ten Eyck building
are also unallowable under the terms of the revised
version of OMB Circular A-87 since the Ten Eyck building
did not meet any of the requirements of the revised
version. Further, the Board considered and rejected
NYSDSS's other arguments, including the argument that the
allowance of interest costs on equipment in the revised
Circular made interest costs on buildings allowable.
Accordingly, the Board found that DCA properly disallowed
the interest component of the lease costs.

Conclusion

We therefore sustain the disallowance of $600,181 based
on the analysis in DAB No. 1336 and DAB No. 1590, which
we incorporate by reference.

___________________________
Cecilia Sparks Ford

___________________________
Norval D. (John) Settle

___________________________
Donald F. Garrett
Presiding Board Member

* * * Footnotes * * *


1. The costs claimed were allocated among
federal programs (listed in the attachment to the July
15, 1996 letter from Vincent J. Bamundo) in accordance
with NYSDSS's approved cost allocation plan. HHS is the
cognizant federal agency for purposes of approving
NYSDSS's cost allocation plan and determining whether
costs are properly charged in accordance with that plan.
While this decision primarily involves programs
administered by HHS, it also covers programs administered
by other federal agencies.

Pursuant to 45 C.F.R. Part 75, NYSDSS was entitled to
appeal DCA's disallowance decision to the Regional
Administrator. However, based on the request of the
parties which was set forth in a joint letter of June 19,
1996, the Board allowed NYSDSS to waive its right to
proceed under 45 C.F.R. Part 75 and to seek direct review
by the Board pursuant to 45 C.F.R. Part 16.
2. The summary decisions are: DAB No. 1343
(1992); DAB No. 1360 (1992); DAB No. 1377 (1993); DAB No.
1417 (1993); DAB No. 1445 (1993); and DAB No. 1506
(1994).
3. OMB Circular A-87 was issued by OMB for use
by federal agencies. The Circular's cost principles for
state and local governments were adopted by HHS as part
of its general grant regulations. 38 Fed. Reg. 26274
(September 19, 1973); 45 Fed. Reg 34272 (May 22, 1980)
(45 C.F.R. § 74.171) (adopting revisions to the
Circular). Currently, 45 C.F.R. § 74.27 makes the
Circular's cost principles applicable to state and local
governments. The Board noted in DAB No. 1590 that the
Board is bound by all applicable regulations (45 C.F.R.
§ 16.14).

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