U.S. ELECTION ASSISTANCE COMMISSION
1225 New York Ave. NW - Suite 1100
Washington, DC 20005

March 20, 2007

EAC Advisory 07-002 - Program Income and Set-off of Cost Incident
to Program Income

Question 1: What is program income?

Response 1: Program income “includes income from fees for services
performed, from the use or rental of real or personal property acquired with
grant funds, from the sale of commodities or items fabricated under a grant
agreement, and from payments of principal and interest on loans made with
grant funds. Except as otherwise provided in regulations of the Federal
agency, program income does not include interest on grant funds, rebates,
credits, discounts, refunds, etc. and interest earned on any of them.”
Common Rule, 41 C.F.R. 71.125, Program Income.

The Common Rule establishes three possible treatments of program income:
deduction, addition, or cost sharing. Deduction is used when, as in most
Federal grants, there are additional funds to distribute to the grantee. In the
instant situation, the States have received all of the funds to which they are
entitled of those funds that have been appropriated by Congress. Similarly,
the cost sharing methods that are required by HAVA have already been
satisfied by the States. Thus, the only appropriate treatment of program
income under the HAVA funding program is for the State or county that
earns the program income during the grant period to dedicate the income to
uses permitted under HAVA, Section 251. Section 251 allows the use of
HAVA funds to implement the requirements of Title III and, after those
requirements are met, to improve the administration of elections for federal
office.

After the expiration of the grant period, program income may be used by the
State or county as it chooses. EAC has established the grant period for
HAVA Title II funds as the period beginning on the date of disbursement of
the funds to the State and ending when the State and/or a political
subdivision of the State expends all of the funds distributed by EAC to the


State, all matching funds, and all interest earned on either the federal funds
or state matching funds.

Question 2: Can a State set off costs incident to the generation of program
income?

Response 2: The Common Rule permits the Federal agency granting the
funds to allow a grantee to set off costs incident to the program income from
the gross program income, thereby reducing the amount of program income
that must, in this case, be re-dedicated to use for purposes expressly allowed
under Section 251 of HAVA. The concept of costs incident to the program
income is more complicated than it may appear. There must be a
determination of what costs are incident to the program income and which
are not. Likewise, there must be documentation to justify these costs.

The following are examples of costs incident to program income generated
from the lease of voting systems to a local jurisdiction. Costs associated with
the following activities, if appropriately documented, may be deducted from
the gross program income to determine the “net program income” that must
be returned to the election fund for use consistent with Section 251 of HAVA:

o Costs of storing voting systems prorated to the local government and
the particular election;

o Costs of maintaining and/or upgrading voting systems prorated to the
local government and the particular election;

o Costs of transporting voting systems to polling places for the
particular election;

o Costs of programming voting systems for the particular election;

o Costs associated with any election function performed by the county
on behalf of the local government incident to the specific election,
including but not limited to auditing the election, producing poll books
for the election, and hiring and compensating poll workers.

This list is not exclusive; however it represents EAC’s thinking on the types
of costs that can be deducted from program income related to leasing voting
equipment.

Another common form of program income is income generated from charging
counties or local governments for the use of or services related to the state-
wide voter registration database. For example, a state may derive income
from charging counties to print poll books from the state-wide voter
registration database. Actual, documented costs associated with the printing,
production and delivery of those poll books can be deducted from the program
income,


If a State has program income generated from other sources and/or other
costs that it believes should be considered as incident to the generation of
program income, those types of costs, an explanation of how they are derived,
and an argument in favor of why they should be considered incident to the
program income and therefore deductible should be forwarded to the EAC for
consideration.

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Donetta Davidson racia Hillman
Chair Commissioner

(a wet plum Spoons & poctmeauas,
Caroline Hunter Rosemary Rodriguez
Commissioner Commissioner