GAB Decision 769
July 16, 1986
Florida Department of Health and Rehabilitative Services;
Docket No. 02-12;
Audit Control No. 04-50500
Garrett, Donald F.; Settle, Norval D. Ballard, Judith A.
The Florida Department of Health and Rehabilitative Services appealed
a decision by the Office of Refugee Resettlement (ORR), Social Security
Administration, disallowing $327,580 in interest earned by the State on
advances of federal funds under the Cuban/Haitian Entrant Impact Aid
Program. The State argued on appeal that it was exempted from
accountability for the interest under the Intergovernmental Cooperation
Act (ICA). The specific issue presented is whether the award of the
funds on which the interest was earned constitutes a "grant" within the
meaning of the ICA.
Below, we first discuss the general rule on accountability for
interest
and the exemption provided in the ICA. We then provide a
background of
the program involved here, the award to Florida, and the audit
which
found that the State had earned interest on program funds.
Finally, we
analyze the State's arguments and state why we conclude that the
award
at issue here was not a "grant" within the meaning of the ICA
and,
therefore, that the State is accountable for the $327,580 in
interest.
The interest rules.
The Comptroller General of the United States has consistently held
that,
except as otherwise provided by law, interest earned by a grantee on
an
advance of federal funds belongs to the United States, rather than
to
the grantee, and must be accounted for. See, e.g., 42 Comp.
Gen. 289
(1962); 40 Comp. Gen.81 (1960); B-192459, July 1,
1980. The rationale
for this general rule is that statutes authorizing
grant programs
contemplate that recipients shall not profit other than in the
manner
and to the extent provided by law. This general rule applies to
public
as well as private agencies, except for states, which may be
exempted
under the Intergovernmental Cooperation Act of 1968. Pub.
L. 90-577,
Oct. 16, 1968, originally codified at 42 U.S.C. 4213 but
recodified at
31 U.S.C. 6501 et seq. by Pub. L. 97-258, Sept. 13, 1982,
without
substantive change. The ICA was enacted,(2) among other
reasons, to
achieve coordination of activities among various levels of
government
and to improve the administration of grants-in-aid to the
states.
Title II of the ICA contains the following provision:
Consistent with program purposes and regulations of the
Secretary of
the Treasury, the head of an executive agency carrying out a
grant
program shall schedule the transfer of grant money to minimize the
time
elapsing between the transfer of the money from the Treasury and
the
disbursement by a State, whether disbursement occurs before or after
the
transfer. A State is not accountable for interest earned on grant
money
pending its disbursement for program purposes.
31 U.S.C. 6503.
The last sentence of this provision was not in the version of the
ICA
originally passed by the House, although it was in the Senate
version.
The Conference Committee followed the Senate version.
Representative
Holifield explained this as follows:
The House bill held that States should be accountable for
interest
earned on deposited grant-in-aid funds pending their disbursement
for
program purposes. We were persuaded that under the new
letter-of-credit
procedure interest accumulated would be so small that it
would make the
accounting for this interest an unnecessary burden and agreed
with the
Senate to waive this requirement.
114 Cong. Rec. 28861 (1968); see, also, S. REP. No. 1456,
90th
Cong., 2d Sess. 15 (1968).
Both the general rule about accountability for interest, and the
exemption
for states, are reflected in HHS regulations governing
administration of
grant programs at 45 CFR Part 74, at section 74.47.
See, also, 45 CFR
74.112. Section 74.47(b) makes it clear, however,
that the exemption
applies only to "grants-in-aid" as defined in the
ICA. (The
recodification of the ICA in 1982 substitutes the term
"grant" for
"grant-in-aid").
The Cuban/Haitian Entrant Impact Aid Program.
Title V of the Refugee Education Assistance Act of 1980, Public
Law
96-422, provided at section 501(a)(1): "The President shall(3)
exercise
authorities with respect to Cuban and Haitian entrants which
are
identical to the authorities which are exercised under chapter 2
of
title IV of the Immigration and Nationality Act (section 1521 et
seq.
of 8 U.S.C.)." That Act included the authority under 8 U.S.C. 1522(c)
to
--
. . . make grants to, and enter into contracts with, public
or
private nonprofit agencies for projects specifically designed --
(1) to assist refugees in obtaining the skills which are
necessary
for self-sufficiency . . .;
(2) to provide training in English where necessary . . .; and
(3) to provide, where specific needs have been shown and
recognized
by the Director, health (including mental health) services,
social
services, educational and other services.
On March 3, 1982, the ORR published a notice of availability of
funds
under this section. The notice announced "the availability of
funds and
award procedures for project grants for services to Cuban and
Haitian
entrants . . . in States and localities where specific needs exist
for
supplementation of currently available resources because of factors
such
as a high concentration of entrants." 47 Fed. Reg. 10908; Appeal
file,
Ex. B. The notice further explained:
The purpose of the grants is to provide additional services
to
entrants in areas where resources for these purposes have been
unusually
strained due to factors such as especially large concentrations
of
entrants. Funding of these special projects is intended to
promote
effective resettlement and to provide needed services to entrants
while
at the same time helping to offset extraordinary impacts or burdens
on
State and local resources.
Id.
The program under which the funds were made available is called
the
Cuban/Haitian Entrant Impact Aid Program, or CHEIAP.
Florida's program.
The Florida Department of Health and Rehabilitative Services, which
also
administers a State plan program providing basic aid to Cuban/
Haitian
entrants, applied for CHEIAP funds and was ultimately(4)
awarded
$31,025,000 for projects to provide services to eligible entrants
during
the period May 1982 through December 1983. The award notice did
not
require the State to contribute funds to meet the costs of the
services;
rather, the federal funds were to cover 100% of the costs.
The CHEIAP
funds were made available to the State under the Treasury check
method,
rather than under a letter of credit. See 45 CFR 74.91.
The HHS Office of Inspector General, Office of Audit, conducted an
audit
of the State's CHEIAP program and found that the State had maintained
an
average daily cash balance of $2.9 million in program funds.
The
auditors found that this balance was in excess of the
program
disbursement needs, and that the State had deposited the excess funds
in
an interest bearing account, earning a total of $327,580 in
interest.
The auditors also found that the State had failed to submit to HHS
the
required financial reports. See 45 CFR Part 74, Subparts H, I.
The State did not deny that it had, in fact, earned this amount
of
interest on CHEIAP funds, nor that it had failed to file
required
reports and held cash in excess of program needs. The State
responded
to the audit report by defending its cash management practices
in
general, stating that its records generally show a receivable due
from
the Federal Government. The State explained that CHEIAP was
an
exception due to the difficulties of managing a $30 million
program,
requiring erratic payments to service providers, on a Treasury
check
method. The State said that its previous experience with
obtaining
Treasury checks had indicated that checks were not always
received
timely, and therefore the State was reluctant to return cash on
hand
even if it was excessive. Audit report, p. 7. The State also
alleged
that it was exempt from accountability for the interest, in
accordance
with the ICA.
ORR determined that the CHEIAP funds awarded to the State did
not
constitute a "grant" within the meaning of the ICA, and,
accordingly,
disallowed the $327,580 in interest.
The definition of "grant".
The State argued that an analysis of the facts of this case would
show
that the award of CHEIAP funds to Florida was a "grant". The
State
pointed out that the statutory authority, the application and
award
documents, and even the audit report referred to the award as a
"grant".
Citing Diamond v. Chakrabarty, 447 U.S. 303 (1979), the State
argued
that, in cases involving statutory construction, the place to begin
is
the language of the statute itself, and unless otherwise defined,
words
will be interpreted as having their ordinary, contemporary,
common
meaning. (5)$% We agree with this as a general
proposition; it does
not resolve this case, however, since the ICA
provides a specific
definition of the term "grant" as used in that Act, which
is more narrow
than the common definition. There is no question but
that the award
here was a "grant" within some meanings of the term, including
the
definition of "grant" used in 45 CFR Part 74, which contains
general
administrative requirements for HHS grants. See section
74.3. The
issue is whether this award fits the specific definition in
the ICA.
As used in the ICA, the term "grant" is defined generally (with
certain
exclusions which the parties agreed do not apply directly here) to
mean:
. . . money, or property provided instead of money, that is paid
or
provided by the United States Government under a fixed annual or
total
authorization, to a State, . . . under a plan or program administered
by
a State . . . that is subject to approval by an executive agency, if
the
authorization --
(1) requires the State . . . to expend non-Government money as
a
condition of receiving money or property from the United
States
Government; or
(ii) specifies directly, or establishes by means of a formula,
the
amount that may be provided to the State . . . or the amount to
be
allotted for use in each State . . .
31 U.S.C. 6501(4)(A) (emphasis added).
The statutory authority for the award (quoted at page 3 above)
indicates
that the award was a "project grant" and that ORR had discretion
to
award the funds to public or private nonprofit organizations and
to
determine the amount of any award. The State's application and
the
award notice further indicate that the award was for 100% of the
project
costs (the spaces which normally indicate what the non-federal share
of
a project will be are left blank).
ORR determined that the program legislation authorizing CHEIAP
neither
required the State to expend non-federal funds as a condition
of
receiving the award, nor determined the amount to be provided
or
allotted to the State directly or by means of a formula.(6)$% The
States
argued that the term "authorization" in section 6501(4)(A)
encompassed
the notice issued by ORR, not only the program legislation, and
that
both alternative parts of the definition were met because CHEIAP
funds.
/1/
The authorization for the award.
The ICA definition of grant provides that the "authorization" must
contain
either one of two alternative provisions. While the definition
does not
refer specifically to "statutory" authorization, it does
elsewhere refer to
"a fixed annual or total authorization . . . ." ORR
argued that this provides
support for its position that the term
"authorization" does not encompass
administrative implementation of
statutory authority, as the State
contended. The State provided no
support for its position.
We think that ORR's reading makes more sense. While an
administering
agency might interpret a statutory authorization, or exercise
discretion
permitted by the statute in establishing the terms and amount of a
grant
award, the power to "authorize" the use of federal funds for
a
particular purpose resides in Congress alone.
The State pointed to nothing in the statutory authorization for this
award
which would qualify it as a "grant" under either of the
alternative parts of
the definition in the ICA. /2/ Even if the State is
correct, however, that
the term "authorization" here should encompass
the ORR notice of availability
of funds, we would(7) not overturn the
disallowance: the award here
still would not meet either of the
alternative bases for finding that the
award is a "grant" within the
meaning of the ICA.
The first alternative.
In support of its argument that the award here met the first
alternative
part of the "grant" definition in the ICA, the State relied on
the
wording of the notice of availability of funds for the CHEIAP
program,
which refers to the CHEIAP awards as being intended to
"supplement"
state funds used for Cuban/Haitian entrants and to provide
"additional"
funds to those already spent by the states. The State
pointed to the
impact that the entrants had had on the State, straining its
resources
for providing services.
The issue is whether the notice "requires the State . . . to
expend
non-Government money as a condition of receiving money . . ." under
31
U.S.C. 6501(4)(A)(i). The notice does establish certain criteria
for
choosing which applicants will receive CHEIAP funds, including that
a
state must have a need for the funds because of the impact of
the
Cuban/Haitian entrants on state resources. This does not compel
a
reading of the statute to include the award here within the
definition
of "grant," however. The Agency's reading of this provision
to mean
that the authorization must require the recipient of the funds to
expend
non-federal funds for a share of the costs of the specific project
or
program involved is reasonable, and, indeed, supported by the wording
of
the provision and its legislative history.
The provision states that the recipient must be required "to
expend"
non-federal funds, rather than "to have expended" such funds,
indicating
that the requirement must relate to a future action.
Moreover, the
non-fedeal funds are to be expended as a "condition" of
receiving the
federal funds. Here, the State had not expended its own
funds to meet a
federal program condition.
The legislative history of the ICA further supports the ORR position.
In
describing the definition, the Conference Report refers to this part
of the
definition of "grant" as a "matching" requirement. H.R. REP.
1934, 90th
Cong., 2d Sess. 28 (1968). /3/ The State did not deny that no
"matching" was
required for the(8) CHEIAP award. Rather, when ORR cited
to this report
as evidence of Congressional intent, the State protested
that the statute
does not use the term "matching" and that the report in
question is an
"obscure and irrelevant report" that was intended only to
explain the
differences between the House and Senate versions of the
legislation.
State's reply brief, p. 2.
We disagree with the State concerning the relevance of the
Conference
Report. The Conference Report is particularly relevant since
one of the
differences between the House and Senate versions of the bill was
with
respect to the provision exempting states from accountability
for
interest. /4/
The second alternative.
The second alternative part of the definition of "grant" in the ICA
(which
the State argued also applied to its CHEIAP award) is that the
authorization
"specifies directly, or establishes by means of a formula,
the amount that
may be provided to the State . . ., or the amount to be
allotted for use in
each State . . . ." 31 U.S.C. 6501(4)( A)(ii). The
State did not argue
that the authorization allotted the funds in
question here, but argued that
the notice of availability of funds set
out a "formula" for award of the
funds.(9)$% The State cited definitions
of the term "formula" from court
cases, which, in effect, refer to a
formula as a "recipe." The State argued
that, contrary to ORR's
assertion, it did not matter that there was no
mathematical formula in
the notice, because the notice in effect specified
the ingredients that
would determine which states received CHEIAP funds.
First, we note that the word "formula" is a term of art in the grants
area
and generally refers to an objective set of criteria, not
subjective criteria
like that set out in the CHEIAP notice. See, e.g.,
31 U.S.C. 6101(7),
as amended by Pub. L. 98-169, Nov. 29, 1983,
Cappalli, supra, Secs. 3:13,
4:01. Indeed, "formula" grants are often
contrasted with "project"
grants, and clearly the CHEIAP award was for a
"project." See, e.g., Catalog
of Federal Domestic Assistance, p. 6-82
(1982). Even adopting the
State's definition of "formula," however, we
would find that the CHEIAP award
does not fit the second alternative
part of the "grant" definition. The
definition refers to a formula
which establishes "the amount" for use in each
state. The CHEIAP notice
here established criteria which applicants had
to meet in order to
receive CHEIAP funds, but did not establish the amount to
be awarded.
Rather, ORR retained discretion to determine award amounts
for
individual states.
In summary, we conclude that the definition of "grant" in the ICA does
not
apply here since "authorization" means the statutory authorization,
not the
administrative requirements, but, even if "authorization"
encompasses the
CHEIAP notice, the authorization would not meet either
of the two alternative
parts of the definition.
Conclusion
For the reasons stated above, we uphold the disallowance of interest
of
$327,580 earned on the CHEIAP funds, since the award of those funds
did
not constitute a "grant" within the meaning of the ICA. /1/ The
State
conceded that, as the
advocate for applying the exemption in the
ICA, the State had the burden to
show that the CHEIAP award fell within
that exemption. Even in the
absence of such a concession, however, we
would conclude that any doubt about
application of the exemption should
be resolved against the State. The
interest here essentially
constitutes a windfall to the State in
circumstances where the State
drew down federal funds in excess of program
needs. /2/ Statutes
authorizing the expenditure of federal funds for assistance to
states
commonly contain provisions which clearly meet one or the other
of these
alternatives. For example, the legislation might contain a
provision
requiring a state to contribute a "matching" share expressed
as a percentage
of program costs or a provision allotting federal funds
to states based on
calculations using factors such as per capita income
and state
population. /3/ The term
"matching" as used in grant
programs generally is equivalent to the concept
of "cost sharing,"
although it is sometimes used more narrowly to mean a 50%
(or, dollar
for dollar) match. See Cappalli, R., Fed Grants and Coop
Agreements
Sec. 4:13; see also 45 CFR Part 74, Subpart
G. /4/ We note
that
interpreting the provision as ORR does makes sense for purposes of
the
interest provision. If a state must provide some of its own funds
to
operate a grant program, it would have a net loss of state funds to
the
extent that the state share of program costs exceeded income,
including
any interest earned on the federal share. Thus, it is highly
unlikely
in this situation that a state would have a net gain by reason
of
accepting the federal award and earning interest on the federal
funds.
Under the CHEIAP program, however, the State received 100%
reimbursement
of its costs, so the $327,580 in interest constitutes a gain
the State
would not otherwise have made. We do not think that Congress
intended
for the State to receive such a windfall. We also note that
the
definition of "grant" in the ICA states specifically that it does
not
include "payments to States . . . as full reimbursement for the
costs
incurred in paying benefits or furnishing services to persons
entitled
thereto under Federal laws." 31 U.S.C. 6501(4)(C). While
ORR did not
argue that this exclusion applied, we think that it has some
relevance.
The same rationale for excluding such payments would apply here
since
the CHEIAP award provided full reimbursement to the State for
services
to persons found eligible under statutory criteria for
Cuban/Haitian
entrants.
MARCH 28, 1987