DAB Decision 53
December 1, 1978 State of Wyoming; Docket No. 76-16; Decision No. 53
DeGeorge, Francis D.; Malone, Thomas Mason, Malcolm S.
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 an HEW determination disallowing $347,024 as building
use charges in its statewide allocation plan for the 1975 fiscal year.
Grantee had constructed a state office building in 1974, in which space
was allocated to several Federally supported projects and administered
by grantee. The HEW Audit Agency and the Regional Director determined
that grantee was charging the Federally funded projects a rate of $4.22
per square foot for
use of the building, while, under the guidelines set forth in Federal
Management Circular (FMC) 74-4, the proper use allowance for Federal
compensation for use of buildings was $.705 per square foot. Grantee
conceded that the space usage rates it charged violated the applicable
rules, but argued that the FMC 74-4 guidelines are unrealistic and that
a decision be stayed while the Office of Management and Budget
reconsiders its cost principles. The Board decided that in the two years
since the date of the appeal there had been no indication that any
change in the cost principles would be forthcoming nor that any possible
change would be applied retroactively so as to affect grantee. The
Board therefore proceeded to decision and sustained the disallowance.
DECISION
The only issue in this case is whether the Board should postpone
decision pending a possible change in the cost principles applicable to
state government agencies contained in 45 CFR Part 74, FMC 74-4 (OMB
Circular A-87) and in OASC-6, A Guide for State Government Agencies.
Grantee, the State of Wyoming, appealed the June 23, 1976 decision of
the HEW Regional Office, Region VIII, to disallow $347,024.79 as
building use charges in its statewide allocation plan for the 1975
fiscal year.
The State of Wyoming completed a state office building in 1974, in which
space was allocated to several Federally supported projects administered
by the State. In 1975 the HEW Audit Agency conducted an audit to
determine if the space usage rate charged to projects in the statewide
allocation plan for use of the State building was reasonable.
The audit determined that during the 1975 fiscal year the State was
charging the Federally funded projects a rate of $4.22 per square foot
for use of the building. The Audit Agency, following guidelines set
forth in Federal Management Circular (FMC) 74-4 authorizing Federal
compensation for the use of buildings when related to the administration
of Federally funded projects, determined that the proper use allowance
for the office building should be $.705 per square foot. The audit
recommended that there be a disallowance of $347,024.79 for the 1975
fiscal year for the use of the building. The HEW Regional Office,
Region VIII, adopted the recommendations of the Audit Agency.
On May 26, 1976 the State appealed this decision to the Regional
Director for reconsideration. The Regional Director notified the State
on June 23, 1976 that he was sustaining the original decision, citing
FMC 73-1(4) as the basis for the Department's mandatory observance of
the cost principles set forth in FMC 74-4.
In a July 26, 1976 letter addressed to the Executive Secretary of the
Board, Grantee requested that the Board reconsider the amount of
building use charges which may be assessed to the Federally funded
projects using the State building. No copy of the disallowance letter
was included with Grantee's submission. In a letter dated August 18,
1976, the Executive Secretary responded that Grantee must comply with
the requirements of 45 CFR 16 in filing its appeal. Grantee was provided
with a
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15 day extension of time to file properly. In an August 30, 1976 letter
the Grantee appealed to the Board, enclosing a copy of the letter of
disallowance. Jurisdiction over determinations with respect to
statewide allocation plans is given to the Board under 45 CFR 16.5(
a)(S).
The appeal is limited to the 1975 and 1976 fiscal years as the State has
expressly agreed to a depreciation/use allowance of 5.705 per square
foot in negotiation agreements for the subsequent years. (May 8, 1978
letter from Wellington E. Webb, Principal Regional Official, DHEW,
Region VIII)
In appealing to this Board, the Grantee expressly concedes that the
space usage rates which it has charged to federal grants violate the
applicable rules. The State's Director of the Department of
Administration and Fiscal Control has stated, "There is no doubt in our
mind that any hearing authority would uphold the fact that Region VIII
has correctly interpreted the applicable regulations." (April 12, 1978
letter to this Board). Under these circumstances it would appear
appropriate that the Board clear its docket by ruling against the
appeal. Oregon Statewide Cost Allocation Plan, Docket No. 75-7,
Decision No. 22, June 25, 1976.
Grantee has argued, however, with some plausibility that the FMC 74-4
guidelines are an unrealistic means of determining usage rates in that
the guidelines fail to take into account such items as land acquisition
costs and bond interest construction costs in establishing usage rates.
The Grantee has pointed out that the Federal Government itself in
determining use rates for federally owned real estate uses approximately
the same system the State was seeking to apply. (July 26, 1976 letter to
the Board). It has been proposed that the Office of Management and
Budget (OMB) reconsider its cost principles and that the Office of the
Assistant Secretary for Management and Budget of the Department
similarly reconsider its applicable cost principles in light of any
change that might be made by OMB. In view of the possible
reconsideration of these cost principles, the Board did not immediately
proceed to rule on the case and did not, as it ordinarily does, require
the agency involved to respond.
After a period of 18 months with no indication of OMB action, however,
the Board in a letter dated 2-10-78 requested the agency to respond to
Grantee's appeal. The Board then received copies of communication from
Grantee to one of the Senators of its State and from the Senator arguing
that it was a denial of due process for the Board to request from the
agency whose decision is being appealed a response to the appeal. It is
normal procedure of the Board to hear both parties to an appeal, not
just one, and by requesting the agency to respond to the appeal the
Board does not abdicate its responsibility to make an independent and
objective judgment of the merits of the dispute before it. The rules
governing the Board do not permit it to entertain
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ex parte communication, and it has therefore forwarded this
correspondence to the agency involved to provide an opportunity to
comment.
The Regional Office responded on 5-8-78 and cited a similar case
involving FMC 74-4 that arose in Chattanooga, Tennessee in 1974. In that
case OMB was asked to revise its cost principles pertaining to building
use charges, but declined to do so. The General Services Administration
(GSA), also petitioned by the grantee in that case, stated that FMC 74-4
should not be revised so as to allow commercial rates to be applied for
the use of municipal buildings. The Comptroller General of the United
States, upholding the GSA's interpretation of FMC 74-4, stated that "the
provisions of FMC 74-4 are not inconsistent with generally accepted
accounting principles although, certainly, the methods authorized by the
circular are not the only reasonable ones that could be prescribed by
GSA. We also note that administratively the methods prescribed by FMC
74-4 are probably the simplest to apply and the least subject to
judgmental misinterpretations and errors. Hence, we cannot say that the
method adopted by FMC 74-4 is unreasonable as a matter of law."
On the state of the record, the case appeared ripe for decision.
The Board therefore directed the appellant to show cause why the Board
should not proceed to decision forthwith on the record already made and
the reasons, if any, why the appeal should not be rejected for failure
of the State to conform to explicit and mandatory guidelines for the
determination of space usage rates, accompanied by any briefing on any
aspect of the case the appellant wished to submit. No cause has been
shown.
Two years have passed since the date of the appeal. There is no present
indication that any change in the cost principles will be forthcoming at
any time. Neither does it appear likely that if there were a change in
cost principles, it would be a retroactive one in view of the large
number of complex matters that would thereby be reopened; nor is there
any showing that if there were to be a change in cost principles and if
it were to be retroactive, the State would be in any way prejudiced by a
decision that the charges now at issue are improper under the cost
principles applicable when the State received its grant and still
applicable.
The appeal is therefore denied. D11 May 7, 1992