GAB Decision 266
March 24, 1982 Idaho Division of Financial Management; Docket No.
81-203 Ford, Cecilia; Teitz, Alexander Settle, Norval
The Idaho Division of Financial Management (State, Idaho) appealed a
disallowance of an unspecified amount by the Regional Director, Region
X, HHS (Agency). The issue is whether the State may include the cost of
debt financing in charges for a State-owned building used for federal
grant purposes since the building was occupied by the State in November
1979.
On February 2, 1982, the Board issued to the State an Order to Show
Cause why the Board should not uphold the disallowance, based on
tentative findings and analysis set forth in the Order. The Order
stated that a response should be sumbitted within 15 days of receipt.
A U.S. Postal Service receipt showed delivery to the State on
February 8, 1982. On March 5, 1982, a response not having been received
from Idaho, a Board attorney telephoned the State and was informed by
the Senior Controller that the State had not filed and would not be
filing a response. The State also advised the Board that the U.S.
Office of Management and Budget had denied a request by Idaho for a
waiver of the prohibition against allowing interest costs.
Based on the foregoing, the Board adopts the findings, analysis and
conclusions set forth in the attached Order.
Conclusion
For the reasons stated above and in the attached Order, we uphold the
disallowance.
(2) DATE: February 2, 1982
ORDER TO SHOW CAUSE
The Divisin of Financial Management of the State of Idaho is
appealing an October 28, 1981 decision of the Regional Director, HHS
Region X (Agency) disallowing the cost of debt financing included in
charges for the use of the Towers Office Building, which is State-owned.
The amount is not specified.
The Towers Office Building was occupied by the State in November
1979. At that time, under the Department's regulations establishing
principles for determining costs applicable to activities assisted by
HHS grants,interest on borrowings apparently was unallowable except when
authorized by Federal legislation. See 45 CFR Part 74, Subpart Q,
Appendix C, Part II. D.7, implementing Office of Management and Budget
(OMB) Circular A-87 (Federal Management Circular 74-4).
The State apparently concurs that the costs were unallowable under
these administrative rules, but contends that the prohibition should be
waived because it occupied the building in the expectation that an
amendment to the rules permitting payment of inerest costs would be
effective October 1, 1979. OMB apparently proposed to make the
effective date of such an amendment October 1, 1979, but at the time of
final publication made it effective October 1, 1980. The Department
adopted the amendment without modification. See 45 Fed. Reg. 34272 (May
22, 1980.)
The Agency apparently agrees that the State did act in the belief
that OMB would make the effective date October 1, 1979. It encouraged
the State to petition OMB to waive the requirement or make an exception
and offered to join in support of the State's request.
The State also contends that the interest cost is relatively small.
It alleges 1) starting at $415,000, the total interest cost would
decrease to zero over the 20-year life of the bonds used to finance the
building, and the federal share would be less than 25 percent; and 2)
with an annual rental rate of $8.10 per square foot, the amount charged
by the State for rental of space is $3.00 to $6.00 less than comparable
private office space. The Agency maintains that the degree of
reasonableness is not a factor in determining whether or not the
prohibition against interest applies.
(3) In response to the Board's letter reminding the State that it had
to submit its brief and appeal file, the State requested a continuation
of the appeal pending final disposition of a waiver request to OMB dated
January 6, 1982. The request for a continuation is denied because it
would be inappropriate for the Board to delay disposition of the appeal
solely to permit the State to pursue its waiver request with OMB.
The Agency apparently was bound by the Department's regulation
prohibiting the interest cost. At the time that HHS adopted the
OMB-sponsored change permitting the payment of interest, the Secretary
noted that HHS had "no discretion to modify the policy." It would
appear
that the Agency acted in a manner consistent with that position when it
refused to approve payment of interest for a building occupied prior to
the October 1, 1980 OMB effective date.
The Board is not aware of any disput about the facts material to this
appeal. For this reason, the Board does not plan to hold an evidentiary
hearing. Also, the Board does not believe that it would be useful to
hold an informal conference and intends to decide this case on the
written record.
Order
Grantee must show cause, in a written response filed within 15 days
after receipt of this order, why the decision of the Agency should not
be upheld based on the requirement that interest costs were not
allowable on a building occupied prior to October 1, 1980.
The Agency may comment on this Order, but is not required to respond.
Both parties are invited to identify in what, if any, respects the
foregoing statement of the case is inaccurate or incomplete. If the
parties assert new facts, they shoiuld document their assertions or
obtain a stipulation from the other party.
OCTOBER 22, 1983