FACILITIES FOUNDATIONS

Belinda Rinker Senior Advisor to the Office of Head Start belinda.rinker@acf.hhs.gov

Importance of Facilities

Involve significant amounts of Federal funds Are the most valuable program property Usually held for long periods of time Complex compliance requirements apply Ongoing oversight is challenging Difficult to fully address during onsite reviews Grantee reporting is currently minimal Potential for large disallowances exists

Facilities Activity Process

Planning the Facilities Activity Completing the Application Managing the Project

Utilization of the Facility

Disposition of the Facility

Planning the Facilities Activity

Begin and continue discussions with Regional facilities staff

Written permission to use grant funds is required: 1309.53 Seek input from multiple sources: parents, staff, community members Make effective use of professionals: engineers, architects, planners Insure complete understanding of regulatory and legal requirements Initiate needed discussions with lenders and landlords

Completing the Application

Elements of the facilities application are very specific: 1309.10 A detailed cost comparison is required: 1309.11 Regional office can request additional information Procurement procedures must be followed Davis-Bacon Act requirements apply Lending arrangements and documents must be submitted If property is leased, permission of landlord is required

Managing the Project

Continue conversations with Regional staff Notices of Federal Interest is required upon funding: 1309.21 Submission of drawings and specifications: 1309.51 Inspections must be provided and maintained: 1309.53 Insurance, bonding and maintenance are required: 1309.23 Carefully monitor costs and address unanticipated overruns Follow procurement procedures Monitor Davis-Bacon Act compliance

Utilization of the Facility

Review compliance to date with property regulations Insure that Notices of Federal Interest have been filed Consent must be obtained for non-HS/EHS program use: 1309.21 Cannot pledge or encumber facility without permission: 1309.21 1309 applies to use of grant funds for mortgage payments Insurance and maintenance requirements are ongoing: 1309.23 Maintain records for ownership or occupancy +3 years:

Disposition of the Facility

Disposition request required if property is no longer needed

Applicable regulations are 45 CFR 74.32 and 45 CFR 92.31 Can use in another Federally sponsored program with permission Grantee retains title: compensate for Federal share Property sold: proceeds apportioned Federal and non-Federal share Directed transfer: compensate for non-Federal share Disposition option is at the direction of ACF

Facilities Funds come with Lots of Strings Attached

Facilities Regulations
45 CFR Part 1309 Head Start Facilities Purchase, Major Renovation and Construction Subpart A General

45 CFR 1309.1 - 1309.5 45 CFR 1309.10 - 1309.12

Subpart B Application Procedures

Subpart C Protection of Federal Interest

45 CFR 1309.20 - 1309.23

45 CFR 1309.30 - 1309.34 45 CFR 1309.40 - 1309.44 45 CFR 1309.51 - 1309.54

Subpart D Modular Units

Subpart E Other Administrative Provisions

Subpart F Construction and Major Renovation

45 CFR 74.32 and 45 CFR 92.31 Disposition of Real Property

Definitions

45 CFR 1309.3

Real Property
Real

property means land, including land improvements, structures and appurtenances thereto, excluding movable machinery and equipment. See also 45 CFR 74.37.

Facilities
Facility

means a structure such as a building or modular unit appropriate for use by a Head Start grantee to carry out a Head Start program. Modular unit means a portable prefabricated structure made at another location and moved to a site for use by a Head Start grantee to carry out a Head Start program.

Definitions

45 CFR 1309.3

Acquire

Acquire means to purchase or construct in whole or in part with Head Start grant funds through payments made in satisfaction of a mortgage agreement (both principal and interest), as a down payment, and for professional fees, closing costs and any other costs associated with the purchase or construction of the property that are usual and customary for the locality.
Purchase means to buy an existing facility, either outright or through a mortgage. Purchase also refers to an approved use of Head Start funds to continue paying the cost of purchasing facilities. Construction means new buildings, and excludes renovations, alterations, additions, or work of any kind to existing buildings.

Purchase

Construction

Definitions

45 CFR 1309.3

Major Renovation

Major renovation means a structural change to the foundation, roof, floor, or exterior or load-bearing walls of a facility, or extension of an existing facility to increase its floor area. Major renovation also means extensive alteration of an existing facility, such as to significantly change its function and purpose, even if such renovation does not include any structural change to the facility. Major renovation also includes a renovation of any kind which has a cost exceeding the lesser of $200,000, adjusted annually to reflect the percentage change in the Consumer Price Index for All Urban Consumers (issued by the Bureau of Labor Statistics) beginning one year after June 2, 2003, or 25 percent of the total annual direct costs approved for the grantee by ACF for the budget period in which the application is made.

Online Calculator: http://data.bls.gov/cgi-bin/cpicalc.pl

Minor Renovation

Incidental alterations and [minor] renovations mean improvements to facility which do not meet the definition of major renovation.

Definitions

Related Party (less-than-arms-length)

Rental costs under less-than-arms-length leases are allowable only up to the amount that would be allowed under the applicable cost principles had title to the property been vested in the recipient. A less-than-arms-length lease is one in which one party to the lease agreement is able to control or substantially influence the actions of the other. Such leases include, but are not limited to, those between divisions of an organization; between organizations under common control through common officers, directors, or members; and between an organization and its directors, trustees, officers, or key employees (or the families of these individuals), directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest.

Definitions

Capital Leases (material equity)

Rental costs under leases that create a material equity in the leased property, as defined in the applicable cost principles, are allowable only up to the amount that would be allowed had the recipient purchased the property on the date the lease agreement was executed. This would include depreciation or use allowances, maintenance, taxes, and insurance, but would exclude unallowable costs. When a recipient transfers property to a third party through sale, lease, or otherwise and then leases the property back from that third party, the lease costs that may be charged to an HHS grant generally may not exceed the amount that would be allowed if the recipient continued to own the property.

Sale and Lease Back

FASB No. 13 Lease Language

Definitions

Fair Market Value and Fair Rental Rate

Market value and rental rate must be established by an independent appraiser, with the value certified by the Grantee (excluding Federal share). Annual depreciation is the acquisition cost of a facility (not including land) divided by its estimated useful life. Once a facility is fully depreciated, a use allowance not exceeding 2% of the acquisition cost may be taken.

Depreciation or Use Allowance

Davis-Bacon Act

45 CFR 1309.54

Construction and renovation projects and subcontracts financed with funds awarded under the Head Start program are subject to the Davis-Bacon Act and the Regulations of the Department of Labor. All contracts entered into by any Head Start program which are in excess of $2,000 and are for the construction, renovation or repair of buildings used by Head Start programs, are subject to the requirements of the Davis-Bacon Act. See IM-95-04. All laborers and mechanics employed by contractors or subcontractors in the construction or renovation of affected Head Start facilities shall be paid wages at not less than those prevailing on similar construction in the locality, as determined by the Secretary of Labor.

Facilities Project Pitfalls

C A

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Adequacy and timeliness of Notice of Federal Interest Compliance with procurement procedures Davis-Bacon Act application and recordkeeping Engaging in facilities activities without 1309 compliance Using Federally funded facilities as collateral (lines of credit) Mortgage payments using Federal funds (ongoing purchase) Confusion between consent and subordination Fair market value versus depreciation or use allowance Related party and capital lease arrangements

Questions and Comments