Federal Assistance Manual Chapter 6-60

CHAPTER 6-60 CHARGES FOR FACILITIES PURCHASED OR CONSTRUCTED BY STATE AND LOCAL GOVERNMENTS

• 6-60-00 Purpose
  
• 6-60-05 Background
  
• 6-60-10 Applicability
  
• 6-60-30 Policy

6-60-00 PURPOSE

The purpose of this Chapter is to prescribe the conditions under which each of two methods for determining the allowable costs of a capital asset will be used and to establish OSM's policy governing the allowability of the costs of land when the capital expenditure method is used.

6-60-05 BACKGROUND

1. OSM's cost principles for State and local governments adheres to OMB Circular A-87. OMB Circular A-87 provides two methods for determining the allowable costs of a capital asset:
   1. the State or locality may charge the costs of the assets to Federally-supported programs through depreciation or use allowances; or

   2. the State or locality may charge the costs to the programs as a capital expenditure if the expenditure is specifically approved by OSM.

2. The principal difference between these two methods relates to the period of time over which the costs of the assets are charged to Federally-supported programs. Under the depreciation - use allowance methods, a portion of the costs is charged to the programs (usually as an indirect cost) each year over a period of years corresponding to the useful life of the asset. Conversely, under the capital expenditure method, the entire cost of the asset is charged to the programs as a direct cost at the time of purchase or construction. In addition, under the depreciation - use allowance method, the costs of land are specifically unallowable, while under the capital expenditure method, the allowability of the costs of land is not specified in the cost principles.

3. Problems have been encountered in determining which of these two methods is appropriate for determining the allowable costs of facilities purchased or constructed by State or local governments under grants (other than construction grants or cooperative agreements) awarded to them by OSM.

6-60-10 APPLICABILITY

1. Grants and Cooperative Agreement Covered

   Nonconstruction grants awarded to State and local government agencies are subject to the cost principles in Circular A-87.

2. Type of Property Covered

   The Chapter applies to facilities purchased or constructed by State and local governments. It does not apply to (a) facilities that are leased by a State or local government, (b) equipment (whether leased or purchased) or alterations and renovations of facilities. OSM's policies governing the allowability of charges for leased facilities and equipment are contained in Chapter 6-10. OSM's policies on alterations and renovations are contained in Chapter 1-44.

6-60-30 POLICY

1. Cost analyses are to be performed to determine whether lease, purchase, or construction is the most cost effective course of action. The procedure for conducting a cost analysis is presented in Chapter 1-44.

2. Depreciation - Use Allowance Method

   The allowable costs of facilities purchased or constructed by State and local governments will be determined in accordance with the depreciation - use allowance method described in Circular A-87.

3. Capital Expenditure Method
   1. The costs of a facility purchased or constructed by a State or local government may be charged to OSM grants as a capital expenditure only when all of the conditions listed below are met.

      If these conditions are met, the total cost of the facility, including the cost of land, is allowable.

      1. The charge is not prohibited by law.

      2. The facility is being specifically purchased or constructed to be used exclusively in the performance of an OSM supported program, or several Federally supported programs, included among which is an OSM supported program; and the facility is expected to be needed for this purpose on a long-term basis.

      3. Accomplishment of program objectives requires the purchase or construction of the facility. A general purpose facility will not meet this condition if the facility is being purchased or constructed because of the need for additional space resulting from the expansion of programs supported by State or local funds or the expansion of Federally-supported programs that are currently housed in facilities that also house State or local programs.

      4. The facility is not already owned by the State or locality. This requirement does not apply to land already owned by the State or locality if the land was purchased in contemplation of constructing a building(s) which meets the requirements of this Section.

      5. The OSM unit responsible for issuing a grant or cooperative agreement consents to the use of this method and approval is obtained from the OSM unit prior to purchase or construction. If more than one Federal program is to be performed in the facility, all agencies responsible for administering the programs must approve the use of the method. Approval prior to the purchase of land will not be required if the land is purchased in contemplation of constructing a building(s) which meets the requirements of this Section. In these cases, approval must be obtained prior to constructing the building(s).

   2. If all of the conditions specified in subparagraph 6-60-30B.1 have been met for the building(s) and other land improvements but have not been met for the land, this method may be used for the building(s) and other land improvements.

   3. When this method is used, the full cost of the facility may be charged to the affected program(s) at the time of purchase or construction; or the costs may be charged to the programs over any period of time agreed upon between the State or locality and the Federal assistance unit. If more than one Federal agency is involved, all such agencies and the recipient must agree on a uniform period during which the costs will be charged to the programs and a uniform method of apportioning the cost of the facility among the programs.

   4. The use of this method may require the establishment of a special indirect cost rate applicable to the program(s) conducted in the facility. Therefore, when this method is used for programs that provide for the reimbursement of indirect cost, the Federal assistance unit must notify the appropriate Federal cognizant agency before using the State or local agency's published indirect cost rate. (See Chapter 6-100)

   5. If the facility is later sold or used for purposes not authorized by OSM, the State or local government will be accountable to the Federal Government for the Federal interest in the facility. Procedures for satisfying this accountability requirement are set forth in Circular A-87.

FEDERAL ASSISTANCE MANUAL
January 2, 1998