DAB Decision 50
November 7, 1978 Seattle Model Cities Program; Docket No. 77-14;
Decision No. 50 DeGeorge, Francis D.; York, Edward T., Jr. Hiller,
Manuel B.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16 Appendix.)
Grantee appealed the determination of the ADAMHA Grant Appeals Committee
disallowing certain support costs (audit services, maintenance and
repair, and facilities costs) claimed by the Grantee as charges to a
grant under the Community Mental Health Centers Act. The Board denied
the appeal on the ground that the applicable statute and regulations
provided only for the compensation of professional and technical
personnel, noting that Congress had considered and rejected a provision
authorizing funding for costs in addition to staffing costs. In
response to Grantee's contention that OMB Circulares A-87 and A-102
enlarged the pool of allowable costs, the Board stated that, even
assuming that the circulares had been made applicable to the grant by
incorporation in the grant terms or through applicable PHS policy
statements, the applicability of specific provisions in the circulares
would be limited by the existence of the statutory and regulatory
provisions specifying the costs allowable under the grant.
DECISION
Facts
The Seattle Model Cities Program ("SMCP"; "grantee"), a
subdivision of
the City of Seattle and now a part of the City's Department of Human
Resources, received a grant from the Public Health Service under P.L.
89-105, which authorizes funding to pay a portion of the costs of
professional and technical personnel in Community Mental Health Centers
(CMHC)., Such grants are commonly referred to as "staffing grants"
(see
grantee's appeal, pp. 1-2; Catalog of Federal Domestic Assistance,
$13,240). The program was to be implemented by the SMCP and a
subcontractor, Harborview Medical Center. On January 1, 1974, the
Harborview Medical Center became the sole grantee, and funding for the
SMCP apparently ended at that time (see p. 3, grantee appeal). The SMCP
as a separate agency apparently no longer exists.
In July 1976, the Alcohol, Drug Abuse, and Mental Health Administration
("ADAHHA"; "the agency") informed grantee that certain costs
were
ineligible (see p. 3, grantee appeal), but a copy of this communication
is not in the record. Under the provisions of 42 CFR Part SO, Subpart
D, grantee appealed the disallowance to the ADAHHA Grant Appeals
Committee which, after reviewing audit findings, upheld the disallowance
of $179,801 in salary and other costs. It is this determination that
grantee is now appealing. A copy of the ADAHHA Grant Appeals Committee
decision, but not the audit findings on which it was apparently based,
is in the record.
Although there were apparently two classes of costs disallowed by the
agency, one involving salaries and the other involving indirect costs,
grantee's appeal letter expressly accepts the disallowance of salary
costs, appealing only the indirect costs issue (pp. 3-4). However, in
its response to the Order to Show Cause, grantee states "the amount in
dispute is $170,306." This suggests that grantee is pressing its claim
for salary costs in the amount of $139,713. Such costs were disallowed
by the agency because the audit found no records to support the salary
payments claimed (letter dated August I, 1977, from ADAMHA Grant Appeals
Committee).
'(Page 02 - 50 - 11/07/78)'
Decision
Grantee's response to the Order to Show Cause totally fails to furnish
any documentation or otherwise address the issue of salary costs.
Consequently, this panel must conclude that the reference to the total
amount of $170,306 as the amount in dispute was gratuitous and that, in
fact, grantee has abandoned its appeal with respect to the salary
claims. We, therefore, consider the only issue before us for decision is
the allowability of the claimed indirect costs.
In support of its finding that indirect costs of the type claimed by
grantee are ineligible for reimbursement under the staffing grant, the
ADAMHA Grant Appeals Board cited the applicable statute and regulations
(P.L. 89-104. section 220, and P.L. 91-211; 42 CFR Part 54) as allowing
only compensation of professional and technical personnel. The relevant
statutory provision states:
for the purpose of assisting in the establishment and initial
operation of community mental health centers. . . the Secretary
may . . . make grants to meet . . . a portion of the costs
(determined pursuant to regulations (promulgated by the
Secretary)) of compensation of professional and technical
personnel . . . (P.L. 89-105, 42 U.S.C. 2688(a)).
(P.L. 91-211 added amendments not relevant to this appeal.)
The agency also cited 45 CFR 54.303, which provides in part:
Eligible Costs
(a) Personnel covered. For purposes of section 220(a) of the
Act and of this subpart, professional and technical personnel
shall be those persons who participate in the provision of an
element or elements of service . and who are found by the Surgeon
General to be appropriately qualified under the circumstances to
occupy positions which require professional or special mental
health training or experience. (b) Allowable compensation. . .
"(C)ompensation" shall include remuneration for services,
vacation, holiday and severance pay, sick leave, workmen's
compensation and employee insurance, social security taxes and
retirement plan costs, and such other benefits in return for
services performed . .
Grantee, on the other hand, contends that the provisions of OMB Circular
A-87 (FMC 74-4) and the HEW Grants Administration Manual allow indirect
costs to be charged unless specifically excluded by the enabling
legislation, and that the Mental Health Program contains no such
specific exclusion (Appeal, pp. 1-2).
'(Page 03 - 50 - 11/07/78)'
Grantee cited the language in 45 CFR Part 74 indicating that regulations
therein are applicable except to the extent inconsistent with applicable
Federal statutes and regulations, and apparently argues that the Part 74
provisions should be superseded by general language contained in OMB
Circular A-102 and FMC 74-4, and general language of the HEW Grants
Administration Manual (Section 5-60-40) stating that use of OMB A-1 02
and A-87 would enlarge the pool of allowable costs (Appeal, pp. 1, 5).
Grantee also, however, concedes that 45 CFR Part 74 is essentially
identical to OMB Circulares A-87 and A-1 02 (FMC 74-4 and 74-7) (Appeal,
p. 5) and that Part 74 was not published until 1973, near the end of the
grant period, and, thus, was not applicable as such to the grant.
Grantee questions the agency citation of 42 CFR 54.303, stating that the
cited provision relates to the evaluation of applications and is
irrelevant to the issue at hand (Appeal, p. 5). In support of this,
grantee encloses a copy of the provision printed in the Federal Register
of February 10, 1972, as a Notice of Proposed Rulemaking. Official
published versions of the regulations covering the period of the grant,
however, show Section 54.303 as entitled "Eligible Costs" and reading
as
quoted above.
Although grantee consistently refers to costs claimed as "indirect
costs," it appears that grantee has, in fact, charged certain support
costs (audit services, maintenance and repair, facilities costs--see
Appeal, p. 2) directly to the grant. This does not, however, appear to
affect the analysis of their allowability. Grantee did not apparently
have an approved indirect cost rate for the period in question and is
not basing its argument on the existence of such a rate.
It is not clear from the record whether OMB Circulares A-87 and A-102
were made applicable to this grant either by incorporation in the grant
terms or through applicable PHS Policy Statements. Even if PHS had
adopted the OMB Circular, the applicability of specific provisions of
the Circulares would clearly be limited by the existence of statutory
and regulatory provisions specifying the costs allowable under the
grant. OMB Circular A-87 by itself does not create a right to
reimbursement for costs not allowed by the program statute and
regulations (see 13, parts A.1 and C.1.c of OMBA-87). The statutory
provisions and supporting regulations quoted above, although not
expressed in terms of limitation, nevertheless restrict allowable costs
to compensation of professional and technical personnel and do not
affirmatively allow payment of support costs. Grantee has not shown any
other regulations pertaining to this program which do allow such costs.
As thus framed, the issue appears to be uncomplicated: Do the OMB
Circulares, Federal Management Circulares, and SEW regulations
implementing them (45 CFR Part 74) enlarge the costs eligible for grant
support? We think not, for the reasons set out below.
'(Page 04 - 50 - 11/07/78)'
Grantee contends, and not without merit, that the Circulares cited
reflect the Federal Government's policy that "federally-assisted
programs bear their fair share of costs under these principles except
where restricted or prohibited by law" (FMC 74-4, Par. 3; HEW Grants
Administration OMB Manual, Chap. 5, Sec. 5-6-30A; OMB Circular A-87,
Attachment A, 1A.) Although expressed in terms of restriction or
prohibition, the limitations upon the applicability of the issuances
are, necessarily, prescribed by the basic authorizations contained in
the grant program legislation. It is too well established to require
extensive citation that grant authority can only be conferred by
Congress and only to the extent authorized by its enactments. We are
constrained to read the Circulares as providing standards and methods
for determining which of, and to what extent, a grantee's costs, if
otherwise eligible for Federal support, are allocable to a grant such as
to merit Federal funding. This reading is firmly buttressed by
Attachment A to Circular A-87 which specifically states the "principles
(therein) are for the purpose of cost determination and are not intended
to identify the circumstances or dictate the extent of Federal and State
or local participation in the financing of a particular grant (emphasis
supplied). See, also, Sec. 1, General Information, HEW Guide for Local
Agencies: 45 CFR Part 74, Appendix C, A.l; FMC 74-4 13, reiterated in
haec verba. "Allowable costs must, inter alia, conform to any
limitations or exclusions set forth in these principles, Federal laws,
or other governing limitations as to types or amounts of cost items."
(C.l.c, Attachment A, A-87). Whether indirect costs, as a class, are
cognizable requires a consideration of the applicable statutes and
regulations. We now examine the scope and extent of the authority
conferred by the grant program statute, both in respect to its explicit
terms and, to the extent amplified or clarified thereby, its legislative
history.
A review of the several successive enactments in aid of the Community
Health Center (CMHC) Program, impels the conclusion that the staffing
grants amendments were intended to be just that and no more.
As indicated by the above-quoted language of the CMHC Amendments of
1965, the Secretary of HEW was authorized to make grants to meet a
portion of the costs "of compensation of professional and technical
personnel." This language specifically identifies the kinds of costs,
and the purposes for which incurred, eligible for grant support. Unlike
other grant legislation, it does not authorize the making of grants for
the general conduct or operation of a program or activity such as a
CMHC; rather, the grant authority is limited to providing support to
pay the compensation of selected personnel. No authority is provided
for grant support beyond limited designated personnel costs. If any
doubt persists concerning the narrowness of the Congressional
authorization, it is dispelled by a consideration of the legislative
development of the entire CMHC program.
'(Page 05 - 50 - 11/07/78)'
As originally enacted, Title IS of the Mental Retardation Facilities and
the CMHC Act of 1963 conferred authority to make grants only for
construction of CMHC (P.L. 88-164; 42 USC 2688). The bill, (5. 1576),
which became the CMHC Act, as passed by the Senate, authorized "initial
staffing grants for technical and professional personnel" at health
centers. The House version did not contain any such provision and, as
finally enacted, the 1963 legislation contained no provision for grants
for initial staffing support. That support was provided subsequently by
an amendment which was introduced in the House as H.R. 2985. It is
worthy of note that the Senate Report (5. Rpt. 89-366) on H.R. 2985
referred to the provision in question, as did the provision in the
earlier Senate bill, as one authorizing "staffing grants." Nowhere
is
found any suggestion that such grants would encompass related
operational, general administrative support, or indirect costs. That
the thrust of H.R. 2985, which became P.L. 89-105, the CMHC Act
Amendments of 1965, was directed toward assisting in the financing of
services furnished patients by qualified professional personnel is
further reflected in the following statement in the Senate Report on H.
R. 2985:
"There is no intent in any way in this bill to discriminate
against any mental health professional group from carrying out its
full potential within the realm of its recognized competence.
Even further it is hoped that new and innovative tasks and roles
will evolve from the broadly based concept of the community mental
health services. Specifically, overall leadership of a community
mental health center program may be carried out by any one of the
major mental health professions. Many professions have vital roles
to play in the prevention, treatment, and rehabilitation of
patients with mental illnesses." (S. Rpt. 89-366)
Subsequently, in 1969, a bill (5 2523) introduced in the Senate and
reported out by the Committee (S. Rpt. 91-583) would have amended the
legislation to authorize grants for operation and maintenance of CMHC.
This was proposed by deleting the reference to "compensation of
professional and technical personnel for the initial operation" of CMHC
and substituting in lieu thereof "operation, staffing, and maintenance"
of CMHC. The House version of the bill contained no such provision, and
the Conference Report (91-856) retained the earlier limited language.
The report stated (p. 12):
The Senate bill changed the scope of the program of grants for the
initial operation of community mental health centers from grants
for initial costs of compensation of professional and technical
personnel of the centers to grants for
'(Page 06 - 50 - 11/07/78)'
operating, staffing, and maintaining the centers. The Senate bill
also made a corresponding change in the programs for facilities
for alcoholics, narcotic addicts, and the mental health of
children.
The House amendment contained no corresponding provision. The
conference substitute does not make any corresponding change in
the scope of any of those programs.
The rejection of the Senate effort to enlarge the scope of eligibility
of activity for grant support lends further weight to the soundness of
the narrower interpretation of the grant authority. Not even the
definition of "technical personnel" enacted in the 1970 Amendments
(found in Sec. 502 of the Conference Committee report on S. 2523) would
encompass the maintenance and repair, audit services and facilities
costs which appellant claims as allowable "indirect costs." That
definition, it should be observed, explicitly excluded the classes of
personnel whose costs appellant here claims are proper costs eligible
for Federal grant support. That section provides:
"For purposes of this title, the term "technical personnel"
includes accountants, financial counselors, medical transcribers,
allied health professions personnel, dietary and culinary
personnel, and any other personnel whose background and education
would indicate that they are to perform technical functions in the
operation of centers or facilities for which assistance is
provided under this title; but such term does not include minor
clerical personnel or maintenance or housekeeping personnel."
In explaining the House attitude toward the Senate's proposal to expand
the scope of the grant, Congressman Staggers, speaking for the managers
of the House, stated, during House consideration of the Conference
Report:
When the Subcommittee on Public Health held hearings last year on
this legislation, testimony was received urging that the present
staffing grants be expanded to cover the cost of all operations of
the community mental health centers.
The committee did not feel that we should, at this time, adopt
such a broad approach to the staffing of these centers,
principally because to do so would offer less encouragement to the
States and local areas to support these facilities.
'(Page 07 - 50 - 11/07/78)'
However, the committee did recognize the need for an expansion of
the definition of staffing personnel in order to assist the
centers in becoming effective quickly.
To that end, the conference report represents, I believe, a
realistic approach to the problem of staffing assistance. (Cong.
Rec., Feb. 26, 1970, pp. H. 1321, 2.)
Ultimately, Congress enacted the CMHC Amendments of 1975 (subsequent to
the grant period here in question) which repealed the CMHC Act, as
amended, and for the first time authorized grants for initial operating
costs (P.L. 94-63; 42 USC 2689(b).)
During consideration of H.R. 4925, which upon enactment became P.L.
94-63, the House Report (H. Rpt. 94-192) on the bill summarized the
situation above described (p. Ill):
"Present law provides assistance to CMHCs only for the costs of
staffing. The Committee has broadened this support to include all
of the operating costs of a center since it is recognized that the
present limitation to staffing costs has often created
inappropriate incentives and pressure on the centers to increase
their staffing in an artificial manner."
One further observation: Section 220(a) of the CMHC Act under which
this grant was made provided for issuance of regulations by the
Secretary. In implementing the Act, the Secretary, in fact, issued
regulations which, inter alia, identified those personnel whose costs of
compensation were eligible for grant support. That regulation (42 CFR
54.303) limited eligibility of personnel costs to the compensation of
"professional or technical persons or personnel . . . who participate in
the provision of an element or elements of service. . . and who are
found by the Surgeon General to be appropriately qualified under the
circumstances to occupy positions which require professional or special
mental health training or experience." The support costs claimed,
whether considered as technical personnel costs or indirect costs,
clearly do not come within the quoted definition. The validity of the
regulation in its competence to so specify requirements of eligibility,
in our opinion, is not open to question. The regulation, having been
duly issued under statutory authority, has the full force and effect of
law.
'(Page 08 - 50 - 11/07/78)'
Conclusion
For the foregoing reasons, it is our decision that the disallowances
determined by the agency were justified by the facts and circumstances
of this case. The appeal is denied. D11 May 7, 1992