Program Income Under Federal Grants

07/25/2006 01:52:15 PM
Kenneth N Petty
HQs Planning Memos and Guidance, Federal Highway Administration, kenneth.petty@dot.gov

Recipients and subrecipients of Federal grants or subgrants can earn income as a result of grant/subgrant supported activities. How the income is accounted for depends on what type of agency the recipient/subrecipient is, whether the federal funds are received directly from the Federal awarding agency or as a subgrant from a State agency, and what terms or conditions the awarding agency places in the grant/subgrant agreement. There are two government-wide "common rules" that cover administration of grants. The US DOT's versions of these rules are: 49 CFR part 18, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments; and 49 CFR part 19, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non profit Organizations. The complete regulations can be found at http://www.fhwa.dot.gov/hep/legreg.htm.

Under both regulations, program income is defined as income earned during the grant/project period as a result of grant/subgrant supported activities. It does not include income after the grant/project period has ended; nor does it include income from royalties and license fees for copyrighted material, patents, and inventions unless such revenues are specifically identified in the grant agreement, or Federal agency regulations, as program income.

Any net proceeds (income received less the cost to generate the income) from program income, must be deducted from the recipient's/subrecipient's expenditures before billing for the Federal share of the net expenditures. However, with prior Federal agency approval program income may be used to meet any non-Federal matching funds requirement or for additional grant activities.

Another important consideration applies if a local government receives federal funds as a subgrant from a State agency instead of directly from a Federal agency. As specified in section 37 of 49 CFR part 18, States shall follow state law and procedures when awarding and administering subgrants (whether on a cost reimbursement or fixed amount basis) of financial assistance to local governments (as defined in 49 CFR 18.3). In such cases, the State agency may impose provisions that are different from or in addition to those in 49 CFR part 18 on the treatment of income earned by the local government subrecipient.

In summary, if the income is earned after the Federal grant is closed or the income is from royalty or copyright fees, it is not program income and may be retained and used by the recipient/subrecipient as it chooses unless the grant/subgrant agreement provides otherwise. Appropriate uses of such income could include continuing performance of similar program activities or providing the matching share for future federal grants.

Income from other grant supported activities, such as, but not limited to, fees for services performed, the use or rental of real or personal property acquired under federally funded projects, or the sale of commodities or items fabricated under an award, earned during the grant period is program income.

If funds are subgranted to a local government by a State agency, the State agency needs to notify the local government of the State's requirements for disposition of income earned as a result of subgrant supported activities.