Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATED: October 20, 1997
Docket No. A-97-149
Decision No. 1633
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 $534,171 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, 1996 through March 31, 1997. The amount disallowed
represents 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), New York State Dept. of Social Services, DAB No.
1590 (1996), and summary decisions based on those
decisions, the Board upheld the disallowance of interest
costs related to the lease of the Ten Eyck building which
were claimed by NYSDSS. 2/ In its Notice of Appeal in
the case now before us, NYSDSS stated that it was
appealing the disallowance on the grounds set forth in
all of its prior appeals concerning this issue. NYSDSS
represented that it would not object to the Board's
issuing a summary decision in this case. In addition,
DCA did not object to the issuance of a summary decision.
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/ DAB No. 1336 is not directly on point
here, however, since that decision considered only an
earlier version of OMB Circular A-87, which was revised
in 1995. The 1995 revision considered in DAB No. 1590
was applicable during the disallowance period at issue
here. The 1995 revision provided that interest costs
were unallowable, except that the rental cost of space
(which includes interest) in publicly owned 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 in
DAB No. 1590 that interest costs associated with the
lease of the Ten Eyck building were unallowable since
none of the conditions in the Circular for allowing the
rental cost of space were met. 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 $534,171 based
on the analysis in 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 a June 27,
1997 letter from Bamundo to Wing) 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.
The amount originally disallowed was $612,937. See
letter dated June 27, 1997 from Bamundo to Wing. DCA
subsequently reduced the disallowance to $534,171 after
determining that $78,766 of the amount originally
disallowed represented costs claimed by the New York
State Department of Health rather than NYSDSS. See July
17, 1997 letter from Bamundo to DeBuono.
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 dated June
2, 1997, 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. Part 75
was deleted effective August 18, 1997. 62 Fed. Reg.
38217 (July 17, 1997).
2. The most recent summary decision cited by
NYSDSS is DAB No. 1601 (1996).
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).
(..continued)