Document ID: FEMA-2006-0035-0029
Agency: fema
Document Type: Rule
Title: Management Costs
Posted Date: 2007-10-11T04:00Z

[Federal Register: October 11, 2007 (Volume 72, Number 196)]
[Rules and Regulations]               
[Page 57869-57879]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11oc07-14]                         

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Parts 206 and 207

[Docket ID FEMA-2006-0035]
RIN 1660-AA21

 
Management Costs

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Interim final rule.

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SUMMARY: This interim final rule implements the management costs 
provisions of the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act. In so doing, it simplifies and clarifies the method by 
which FEMA contributes to costs incurred by grantees and subgrantees in 
implementing the Public Assistance and Hazard Mitigation Grant programs 
and establishes fixed management cost rates for compensating eligible 
grantees and subgrantees.

DATES: Effective Date: This rule is effective on November 13, 2007.
    Comment Date: Comments are due on or before November 13, 2007.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2006-
0035, by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 

instructions for submitting comments.
    E-mail: FEMA-RULES@dhs.gov. Include Docket ID FEMA-2006-0035 in the 
subject line of the message.
    Fax: 866-466-5370.
    Mail/Hand Delivery/Courier: Rules Docket Clerk, Office of Chief 
Counsel, Federal Emergency Management Agency, Room 835, 500 C Street, 
SW., Washington, DC 20472.
    Instructions: All Submissions received must include the agency name 
and Docket ID. Regardless of the method used for submitting comments or 
material, all submissions will be posted, without change, to the 
Federal eRulemaking Portal at http://www.regulations.gov, and will 

include any personal information you provide. Therefore, submitting 
this information makes it public. You may wish to read the Privacy Act 
notice that is available on the Privacy and Use Notice link on the 
Administration Navigation Bar of http://www.regulations.gov.

    Docket: For access to the docket to read background documents or 
comments received, go to the Federal eRulemaking Portal at http://www.regulations.gov.
 Submitted comments may also be inspected at Office 

of Chief Counsel, Federal Emergency Management Agency, Room 835, 500 C 
Street, SW., Washington, DC 20472.

FOR FURTHER INFORMATION CONTACT: Jonna M. Long, Office of the Chief 
Financial Officer, Federal Emergency Management Agency, PP 632, 500 C 
Street, SW., Washington, DC 20472, 202-646-7057, (facsimile) (202) 646-
4268, or (e-mail) jonna.long@dhs.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Under the provisions of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (Stafford Act), 42 U.S.C. 5121-5206, and its 
implementing regulations, the Federal Emergency Management Agency 
(FEMA) has the authority to assist State and local governments in 
carrying out their responsibilities pursuant to a Presidentially-
declared major disaster or emergency. Two of the major programs 
authorized by the Stafford Act that provide assistance to State and 
local governments are the Public Assistance (PA) program and the Hazard 
Mitigation Grant Program (HMGP).
     PA, implemented at part 206 subparts G and H of this 
chapter, provides funding through grants for emergency protective 
measures, debris removal, and repair, replacement, or restoration of 
facilities not met by insurance.
     HMGP, implemented at part 206 subpart N of this chapter, 
provides funding through grants to undertake sustained mitigation 
measures that will reduce or permanently eliminate the long-term risk 
to people and property from natural hazards and their effects. 
Sustained mitigation measures include acquisition for open space, 
elevations of flood prone properties, and wind or seismic retrofitting 
of structures.
    Section 324 of the Stafford Act, 42 U.S.C. 5165b, requires FEMA to 
establish management cost rates for grantees and subgrantees that will 
be used to determine contributions for management costs and to review 
those management cost rates not later than 3 years after the date of 
establishment of the rates and periodically thereafter. ``Management 
costs,'' for purposes of this regulation, include any indirect costs, 
any administrative expenses and any other expenses not directly 
chargeable to a specific project that are reasonably incurred by a 
grantee or subgrantee in administering and managing a PA program or 
HMGP grant award.

[[Page 57870]]

    Funding for management and administrative costs for PA and HMGP 
grantees and subgrantees is provided currently through one of three 
mechanisms:
     Associated costs, also known as the Statutory 
Administrative Costs Allowance or the ``sliding scale,'' under section 
406(f) of the Stafford Act (which is repealed with the establishment of 
management costs under this rule pursuant to Pub. L. 106-390, sec. 
202(b)(2)), which include:
    [cir] Extraordinary costs incurred by a grantee for preparation of 
damage survey reports, final inspection reports, project applications, 
final audits, and related field inspections by State employees, such as 
overtime pay and per diem and travel expense of such employees, but not 
regular time; and
    [cir] Necessary costs incurred by a subgrantee of requesting, 
obtaining, and administering Federal disaster assistance;
     State Management Costs, which include regular time labor 
costs for grantee and temporary employees, contract costs, equipment 
and office supplies, and communications costs; and
     Grantee indirect costs, which are costs incurred through a 
project that are not directly related to it, such as utilities, rent, 
and other overhead.
    These three types of costs are currently paid in accordance with 
Sec.  206.228(a)(2) through 206.228(a)(3)(ii) and 206.228(b) for PA, 
and Sec.  206.439(b)(1) through (c)(2) for HMGP which are revised by 
this interim final rule.
    The management cost rates set forth in this regulation replace what 
FEMA previously paid State and local governments for associated costs 
through the ``sliding scale,'' State management costs, and grantee 
indirect costs. Management cost funding will be requested through the 
PA Project Worksheet (PW) or HMGP project application process. PWs and 
HMGP project narratives are already submitted by grantees. Any costs 
that can be directly attributable to a project (at the grantee or 
subgrantee levels) will continue to be added directly to the PA PW, or 
HMGP application for the project.

II. Comments, Responses, and Changes to the Proposed Rule

    FEMA published a Notice of Proposed Rulemaking (NPRM) (67 FR 56130, 
August 30, 2002) proposing a methodology for calculating the management 
cost rates, and guidance for the implementation of section 324 of the 
Stafford Act. In the NPRM, FEMA proposed to implement section 324 of 
the Stafford Act by creating an entirely new grant program for 
management cost funds, separate from grants awarded for PA and HMGP. 
FEMA also proposed to provide a set amount based on a percentage of the 
Federal share of PA and HMGP projections for a declaration. That amount 
would be available for PA and HMGP grant management and administration, 
and for grantees and subgrantees, and would allow grantees the 
flexibility to distribute funds in a manner representative of their 
priorities for management of the two programs.
    During the 30-day comment period, FEMA received comments from 23 
States, the U.S. Virgin Islands, 2 associations, and 1 consulting firm. 
All comments were considered carefully in formulating this interim 
final rule. A summary of the comments received, as well as FEMA's 
responses, is set forth below.

a. General Comments and Changes

1. Adequacy of Rates
    FEMA received several comments about the rates that were published 
in the proposed rule, with many of the commenters claiming the rates 
were inadequate for effective program management and that FEMA did not 
accurately reflect costs not paid with Federal funds. As the rates are 
based on what FEMA historically paid grantees and subgrantees for 
program management, and historically, grantees and subgrantees were 
able to administer and manage PA and HMGP at that level of funding, 
FEMA does not believe the rates will be inadequate for future program 
management.
    FEMA acknowledges that the rates prescribed may not cover all costs 
incurred by a grantee. The Stafford Act, however, in sections 101(b), 
401, and 501(a), establishes the Federal Government's role in disaster 
response and recovery as supplementing State efforts in carrying out 
their responsibilities; management cost funds are contributions, not 
full funding. FEMA believes that basing the rates on historical Federal 
obligations is appropriate and, as the rates will be applied to the 
Federal share of program projections, grantees and subgrantees are 
reasonably expected to contribute at least a comparable amount of 
management cost funds to the non-Federal share.
    In any case, as several commenters noted, the funds that FEMA will 
provide for management costs are only meant to contribute to costs that 
are not directly chargeable at the project level. FEMA will continue to 
reimburse administrative or project management costs that can be 
properly documented and directly charged to the project.
2. Separate Indirect Costs
    Several commenters were concerned that the proposed funding for 
management costs did not comport with OMB Circular No. A-87 and part 13 
which allow for the reimbursement of indirect costs and part 13 because 
in the proposed regulations separate payment for indirect costs would 
not be allowed. However, section 324 of the Stafford Act defines 
management costs as including indirect costs; therefore, separate 
reimbursement for indirect costs is not permitted, because doing so 
would be duplicative.
3. Increased Costs Due to New Grant Process
    Some commenters were concerned that the management cost rates as 
calculated did not account for the additional costs of application, 
administrative, monitoring, and reporting requirements of the new grant 
program outlined in the proposed rule. Since publication of the 
proposed rule, and in response to comments, FEMA has decided to 
implement section 324 of the Stafford Act as part of the PA and HMGP 
programs and not as a separate grant program. The additional 
requirements of a separate grant program no longer apply.
4. Combined Rate for PA and HMGP
    In the proposed rule, FEMA proposed to provide a combined set 
amount that would be available for both PA and HMGP grant management 
and administration to allow grantees the flexibility to distribute 
funds in a manner representative of their priorities for management of 
the two programs.
    Some commenters felt that providing a set amount for a declaration 
that would be available for PA and HMGP did not provide the flexibility 
to distribute the funds in a manner representative of the grantee's 
priorities for management of the two programs, but rather would be 
impractical and create additional burden to program managers. Because 
FEMA has decided to implement section 324 of the Stafford Act as part 
of PA and HMGP and not as a separate grant program, these concerns are 
moot. In this interim final rule, FEMA is publishing three management 
cost rates: One for PA pursuant to major disaster declarations; one for 
HMGP pursuant to major disaster declarations; and one for PA pursuant 
to emergency declarations.

[[Page 57871]]

5. Combined Rate for Grantee and Subgrantees
    FEMA received a few comments critical of its proposal to provide 
management cost funds to grantees for both grantee and subgrantee use. 
One State commented that the process could be very divisive unless 
State plans were in place and accepted prior to declaration. FEMA 
agrees; accordingly, in the interim final rule, FEMA is requiring 
States to outline their plans for subgrantee treatment in the State 
administrative plans required for PA and HMGP.
    Moreover, two States commented that management cost funding 
administration would be simplified if subgrantee costs were based on 
project award or the total cost of the project. FEMA agrees that these 
are viable options for States to consider. Nevertheless, for the 
reasons set forth below, FEMA has not changed the combined rate 
concept.
    FEMA's relationship in PA and HMGP is with the grantee; the grantee 
has the direct relationship with its subgrantees. FEMA believes that, 
just as a grantee has the right and the ability to determine cost-
sharing requirements for its subgrantees, it has the right and the 
ability to determine reasonable contributions for management costs that 
cannot be directly charged to projects.
6. Updated Calculation of Management Cost Rates
    In the proposed rule, FEMA published rates for major disaster and 
emergency declarations based on obligations for major disasters and 
emergencies declared in the 6-year period 1995 through 2000 and 
supplemented by data from States that were able to provide information 
on costs not reimbursed by FEMA. As FEMA's disaster processing systems 
were not fully automated for that period, data came from various 
sources.
    In August 1998, FEMA implemented its National Emergency Management 
Information System (NEMIS). NEMIS provides the capability to extract 
data on sliding scale, State management cost, and indirect costs 
obligations. In this interim final rule, FEMA is publishing three 
management cost rates: One for PA pursuant to major disaster 
declarations; one for HMGP pursuant to major disaster declarations; and 
one for PA pursuant to emergency declarations. NEMIS data for major 
disasters and emergencies declared in the six-year period August 1998 
through July 2004 were used to update the management cost rate 
calculations.

b. Section-by-Section Analysis

1. Definitions
    FEMA received comments from five States on Sec.  207.2 of the 
proposed rule. One commenter requested that FEMA add a definition of 
``close out;'' this was done.
    In the proposed rule, FEMA defined ``lock-in'' as the amount of 
management cost funds available to a grantee for a particular major 
disaster or emergency, as FEMA determines at 30 days, 6 months, and 
after the final HMGP lock-in. Two germane comments were received on the 
definition of ``lock-in.'' One commenter suggested that large projects 
that take more than 6 months for FEMA approval would not be factored 
into the rate and therefore the amount available to the State would be 
reduced. FEMA believes this is incorrect as the amount of management 
cost funding that will be made available will be based on program 
projections--not approved projects. Another comment asserted that this 
``produces an even harder financial hit to the grantee and subgrantee'' 
because current subgrantee administrative costs are based on the total 
obligation, not just the Federal share. This disparity is addressed 
because the percentage is based on what FEMA paid out over a 6 year 
period, including the funding paid to subgrantees that is based on the 
total project obligation, not just the Federal share.
    One State asked what the basis for the management cost funding 
would be for the HMGP when only Individual Assistance (IA) and HMGP are 
declared. Under an IA/HMGP declaration, the HMGP management cost rate 
would be provided for management of that program based on the estimated 
projections (Federal share) for the HMGP program.
2. Applicability and Eligibility
    FEMA received several comments about the applicable date described 
in Sec.  207.3. In the preamble of the proposed rule, FEMA noted that 
the anticipated implementation date was subject to change. Progress 
toward implementation was slowed by several factors and the 
implementation date for management costs has been changed accordingly.
3. Responsibilities
    One commenter suggested that, rather than reviewing the rate no 
later than three years after the rule is in effect, FEMA should review 
after 1 year. Because section 324 of the Stafford Act requires FEMA to 
review the management cost rates established not later than 3 years 
after the date of establishment of the rates and periodically 
thereafter, FEMA retains the discretion to review sooner, if necessary. 
Accordingly, this change was not made.
    Two States asked whether pass-through funding to subgrantees was 
mandatory. The Stafford Act defines the management cost rates as being 
for grantees and subgrantees. FEMA has added language to clarify the 
grantee's responsibility for determining the amount or percentage of 
management cost funding to be passed through to subgrantees and 
ensuring that it provides such funds to subgrantees.
    Other States expressed concerns about setting a fixed rate. 
However, the Stafford Act requires FEMA to set management cost rates to 
be used to determine contributions for management costs--full 
compensation to a grantee or subgrantee is not implicit. FEMA believes 
that the sharing of costs--as PA and HMGP costs are shared--leads to 
better fiscal responsibility and accountability.
4. Determination of Management Costs
    The title of this section has been renamed ``Determination of 
management cost funding'' to more accurately reflect that what is being 
determined is the amount of funding that will be available for 
management costs, not whether specific costs are eligible as management 
costs.
    Two comments were received about the timing of, and adjustments to, 
the lock-in amount. One commenter felt that locking into a final amount 
at 9 months would cause unfair fiscal burdens on grantees and 
subgrantees. In the proposed rule, FEMA stated it would determine the 
final lock-in amount for management cost funding at 9 months or after 
the final HMGP lock-in ceiling was determined, whichever was later. 
After HMGP lock-in, the projected amount of funding for that program is 
set. FEMA believes that locking into a management cost amount after the 
HMGP ceiling is established maximizes the amount available for 
management costs. However, since the HMGP ceiling is currently expected 
to lock at 12 months, FEMA has changed the final lock-in date for 
management costs to 12 months or after HMGP lock-in, whichever is 
later. The other commenter suggested that the phased lock-in process 
should allow for increases as disaster cost estimates change; the rule 
as written allows this.
    Two States provided comments on the $20 million cap proposed for 
the total amount of management cost funds to be provided pursuant to a 
single

[[Page 57872]]

declaration. One State claimed that $20 million equated to a $453 
million event, which would not be out of the ordinary. FEMA does not 
agree with this calculation, as it assumes the $453 million was derived 
by calculating that $20 million is 4.41 percent (the rate in the 
proposed rule) of $453 million. In this case, $453 million would indeed 
represent combined PA and HMGP projections; however, on average, PA and 
HMGP represent approximately 58 percent of total disaster costs. 
Therefore, $20 million in management cost funding would approximately 
equal a $781 million event ($781 million x .58 = 453 million)--far more 
out of the ordinary.
    The other State commented that ``[t]he identification of $20 
million as the ``not to exceed'' amount for management costs appears to 
be the real reason for this proposed rule.'' FEMA disagrees with this 
statement, as the rule is being promulgated in response to a change in 
law (section 324 of the Stafford Act, 42 U.S.C. 5165b).
    Although FEMA is now providing separate management cost rates and 
funding for PA and HMGP as part of the programs and not as a separate 
grant program, the single cap for management costs for the declaration 
has been retained.
5. Eligible Use of Funds
    Since publication of the proposed rule, and in response to 
comments, FEMA has changed the title of this section to ``Use of 
funds'' to more accurately reflect the content of the section.
    FEMA received a number of comments and questions on this section, 
many related to individual items that were listed as ``eligible'' or 
``ineligible.'' The items listed in the proposed rule were not meant to 
be exhaustive, but rather were to be representative of the types of 
costs for which the use of management cost funding would be 
appropriate. In response to comments, FEMA has determined that the 
lists are not necessary. Instead, the interim final rule states that 
all charges must be related to administration of PA and HMGP, must be 
properly documented, and must be made in accordance with Sec.  13.22.
    FEMA received a number of questions about the treatment of indirect 
costs. Because the statutory definition of management costs in section 
324 of the Stafford Act, 42 U.S.C. 5165b, includes indirect costs, 
grantees and subgrantees may not add such costs to project costs or 
request reimbursement separately. After the effective date of this 
interim final rule, the only available mechanism for reimbursement of 
indirect costs for PA and HMGP is use of management cost funding 
provided in this section.
    In the NPRM, FEMA proposed that any management cost funds that were 
not needed for a specific declaration could be retained by the grantee 
or subgrantee, upon approval of a spending plan for improvement of the 
disaster programs' general financial and grants management. Because 
such costs are already eligible management costs, if directly 
attributable to program management for that declaration, FEMA has 
determined there is no need for a second spending plan. Any such 
planned expenditures should be included with the documentation 
submitted to support the management cost funding request and any 
management cost funds not properly expended in direct support of PA or 
HMGP will be deobligated by FEMA.
6. Application Procedures
    FEMA received several comments about the proposed process and 
timing for applying for management cost funding. Because the 
requirements of a separate grant program no longer apply, the process 
for requesting management cost funding is simplified. Accordingly, FEMA 
has decided to implement section 324 by continuing to use the same 
application processes for management costs as it is currently using, 
rather than as a separate grant program. That is, grantees will 
continue to apply for PA management cost funding using a PW and its 
associated forms, if applicable, and for HMGP management cost funding 
using a project narrative.
    Additionally, FEMA will not require detailed justifications to 
support management cost funding requests until 120 days after the date 
of declaration. This change will alleviate the burden to the grantee, 
at the busy time of initial response and recovery, and afford the 
opportunity for the grantee to provide a more thorough and accurate 
request to FEMA.
    In the interim final rule, the ``Application procedures'' section 
has been changed to ``Procedures for requesting management cost 
funding.''
7. Grants Management Oversight
    Since publication of the proposed rule, and in response to 
comments, FEMA has decided to implement section 324 of the Stafford Act 
as part of the PA and HMGP programs and not as a separate grant 
program. Subsequently, this section of the rule has been changed to 
``Management cost funding oversight.''
    In the proposed rule, FEMA stated that management cost funds would 
need to be expended not later than 6 years from the date of major 
disaster or emergency declaration, or by 90 days after grant closeout, 
whichever is sooner. The 6 year limit was meant to encourage proper 
grant management, which includes timely grant closeout. In response to 
comments asking for additional time and after further analysis, FEMA 
has changed the 6 year limit to a maximum of 8 years for major disaster 
declarations and 2 years for emergency declarations, or 180 days after 
the latest performance period date of a non-management cost PA PW or 
HMGP project narrative, respectively, for both types of declarations, 
whichever is sooner.
8. Declarations Before October 1, 2002
    Since publication of the proposed rule, FEMA has changed the 
implementation date of section 324 of the Stafford Act. Subsequently, 
Sec.  207.9 of the rule has been changed to ``Declarations before 
November 13, 2007.'' This section includes provisions on administrative 
and management costs previously described in Sec. Sec.  206.228 and 
206.439.
    FEMA received four comments disagreeing with the provision in the 
proposed rule that imposed a timeframe on performance periods for 
declarations made before implementation of section 324. In the interest 
of ensuring responsible grant management practices and moving towards 
consistency in the administration of management and administrative 
costs provided for the affected programs, FEMA believes this provision, 
which allows a reasonable amount of time for grantees to comply, is an 
appropriate and necessary provision.
9. Review of Management Cost Rates
    One State commented that it did not believe the ``solution to 
controlling expenses is to adopt the flat rate percentage as published 
and then go back to the drawing board after this rule is in effect'' 
and suggested deleting the periodic review and documentation 
requirements. FEMA did not make this change, as the Stafford Act 
requires the review and documentation. Further, section 324 of the 
Stafford Act is not a ``solution to controlling expenses,'' but rather 
a simplification of the multiple methods currently used to contribute 
to grantee and subgrantee costs.

III. Regulatory Requirements

Administrative Procedure Act

    Even though an NPRM has been published, FEMA is publishing this 
interim final rule rather than proceeding

[[Page 57873]]

to a final rule to provide the public with an additional opportunity to 
comment. FEMA has opted to provide this additional opportunity to 
comment although the changes to the regulations made in this interim 
rule are a logical outgrowth of the proposed regulations published in 
the NPRM and additional opportunity for public comment is not 
mandatory. As previously addressed in this preamble, the substantive 
changes to this regulation are as follows:
     Because of comments that raised concerns of increased 
costs and workload due to the creation of a new grant process, FEMA 
revised the regulations to incorporate management cost funding into the 
existing PA and HMGP programs.
     FEMA received comments from the public concerned that 
providing a combined set amount in management cost funds that would be 
available for both PA and HMGP would be impractical and create 
additional burden to program managers. Because of these comments, FEMA 
has revised the regulations to provide three management cost rates: PA 
pursuant to major disaster declarations; HMGP pursuant to major 
disaster declarations; and PA pursuant to emergency declarations. Due 
to the availability of better data provided by the use of the National 
Emergency Management Information System (NEMIS), in this interim rule 
FEMA updated the management cost rate calculations for those three 
rates.
     FEMA received comments that providing management cost 
funds to grantees for both grantee and subgrantee use could be divisive 
unless State plans are in place and accepted prior to declaration. FEMA 
agreed and revised the regulation to require States to outline their 
plans for subgrantee treatment in the State administrative plans 
already required for PA and HMGP.
     The implementation date was changed, as noted in the 
preamble to the NPRM.
     In response to comments concerned that locking into a 
final amount at 9 months would cause unfair fiscal burdens, FEMA 
changed the final lock-in date for management costs to 12 months or 
after HMGP lock-in, whichever is later.
     FEMA received several comments about the proposed process 
and timing for applying for management cost funding. As a response, 
FEMA will not require detailed justifications to support management 
cost funding requests until 120 days after the date of declaration to 
alleviate the burden on the grantee and afford them the opportunity to 
provide a more thorough and accurate request.
     In response to comments asking for additional time to 
expend management cost funds, FEMA extended the limit of 6 years from 
the date of major disaster or emergency declaration or 90 days after 
grant closeout, whichever is sooner, to a maximum of 8 years for major 
disaster declarations and 2 years for emergency declarations, or 180 
days after the latest performance period date of a non-management cost 
PA, PW or HMGP project narrative, respectively, for both types of 
declarations, whichever is sooner.
    Further, under 5 U.S.C. 553(b)(B) FEMA finds that good cause exists 
for not publishing a Supplemental Notice of Proposed Rulemaking 
(SNPRM), because publishing an SNPRM would be contrary to public 
interest since immediate action is needed to correct weaknesses in 
awarding funds to cover grantee operations associated with the 
administration of PA and HMGP grants. As stated earlier in the preamble 
to this interim rule, Public Law 106-390, section 202(b)(2), created 
section 324 of the Stafford Act which becomes effective when FEMA has 
promulgated a management cost rate regulation (this regulation). Until 
this regulation is published, management cost funding is provided 
pursuant to subsection 406(f) of the Stafford Act, OMB Circular No. A-
87, and part 13.
    In its ``Review of FEMA Policy for Funding Public Assistance 
Administrative Costs'' (GC-HQ-06-40) dated April 28, 2006, FEMA was 
advised by the Department of Homeland Security Office of Inspector 
General (OIG), that it should take immediate action to implement 
section 324 of the Stafford Act. This was reiterated in the OIG's 
``Review of FEMA Internal Controls for Funding Administrative Cost 
under State Management Grants'' memorandum dated January 9, 2007 (OIG-
07-21). This interim rule is intended to establish management cost 
rates to replace the administrative allowance and state management 
grants and address funding and related control weaknesses immediately, 
while continuing to take public comment and, perhaps, further amend the 
regulations in light of those comments.
    Pursuant to 5 U.S.C. 553(d), FEMA is making this rule effective 30 
days after publication in the Federal Register. FEMA invites further 
comment from the public on this interim final rule.

Congressional Review of Agency Rulemaking

    FEMA has sent this interim final rule to the Congress and to the 
Government Accountability Office under the Congressional Review of 
Agency Rulemaking Act, 5 U.S.C. 801-808. The rule in not a ``major 
rule'' within the meaning of that Act and will not result in an annual 
effect on the economy of 100,000,000 or more. Moreover, it will not 
result in a major increase in costs or prices for consumers, individual 
industries, Federal, State, or local government agencies, or geographic 
regions. Nor does FEMA expect that it will have ``significant adverse 
effects'' on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises.

National Environmental Policy Act (NEPA)

    FEMA explained when the proposed rule was published that Sec.  
10.8(d)(2)(ii) excludes this rule from the preparation of an 
environmental assessment or environmental impact statement, where the 
rule relates to actions that qualify for categorical exclusion under 
Sec.  10.8(d)(2)(i), such as the provision of funding for management 
costs. No commenters disagreed with our determination. FEMA has not 
prepared an environmental assessment or environmental impact statement 
for this interim final rule.

Paperwork Reduction Act of 1995

    In the proposed rule, FEMA proposed to provide management cost 
funding through a new grant program. Because that new grant program 
would collect new information from the public, FEMA determined that it 
would be subject to the Paperwork Reduction Act (PRA) of 1995, 44 
U.S.C. 3501-3520, and obtained Office of Management and Budget (OMB) 
approval for Control Number 1660-0063, Management Costs information 
collection. As a result of public comments and further analysis, as 
discussed elsewhere in the preamble of this interim rule FEMA has 
withdrawn its proposal to create a new grant program, and has decided 
to implement section 324 of the Stafford Act as part of the already 
existing PA and HMGP programs. FEMA submitted an OMB83D form on 
September 16, 2005 to discontinue OMB Control Number 1660-0063, 
Management Costs information collection; OMB approved the 
discontinuance on September 21, 2005. FEMA no longer intends to collect 
information with respect to that proposed grant program.
    In this interim rule, FEMA implements section 324 by continuing to 
use the same application processes for management costs as it is 
currently

[[Page 57874]]

using, rather than as a separate grant program. That is, grantees will 
continue to apply for PA management cost funding using the Project 
Worksheet (PW) and its associated forms, if applicable, as already 
approved by OMB. The PW and associated forms for PA management cost 
funding are approved under OMB Control Number 1660-017, Public 
Assistance Progress Report and Program Forms information collection 
which expires on October 31, 2008. HMGP management cost funding would 
be provided using the project narrative approved under OMB Control 
Number 1660-0076, Hazard Mitigation Grant Program Application and 
Reporting information collection which expires May 31, 2010.
    Use of these collections under this interim final rule does not 
impose additional burden under those program collections. By allowing 
grantees to continue to request management cost funding via the same 
processes with which they are familiar, FEMA expects that this rule 
will simplify the process and reduce the burden to the public.

Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), 
agencies must consider the impact of their rulemakings on ``small 
entities'' (small businesses, small organizations and local 
governments). When 5 U.S.C. 553 requires an agency to publish a notice 
of proposed rulemaking, the Regulatory Flexibility Act requires a 
regulatory flexibility analysis for both the proposed rule and the 
final rule if the rulemaking could ``have a significant economic impact 
on a substantial number of small entities.'' The Act also provides that 
if a regulatory flexibility analysis is not required, the agency must 
certify in the rulemaking document that the rulemaking will not ``have 
a significant economic impact on a substantial number of small 
entities.''
    This interim final rule affects grantees that are State 
governments, or in certain situations, Indian tribal governments. It 
does not impact private sector entities. Further, the result of this 
interim final rule will be to reduce the administrative burden on both 
grantees and the Federal government by simplifying and clarifying the 
application process, grant administration, and reimbursement methods 
for management and administration costs by reducing the current three 
methods and processes to one. Further, grantees currently make numerous 
petitions for payment. Implementation of this interim final rule is 
expected to reduce the number of times grantees will need to petition 
to receive payment for management costs.
    This interim final rule does not impact the amount of funding 
available for management costs, as the percentages for reimbursement 
proposed are based on historical average obligations. Although there is 
a proposed cap on the amount of management costs that can be provided 
per declaration, the interim final rule provides a mechanism for waiver 
in extraordinary circumstances.
    Because this interim final rule does not impact the amount of funds 
provided to grantees, but simply reduces the administrative burden to 
State and Indian tribal government grantees, FEMA certifies that it 
will not have a significant economic impact on a substantial number of 
small entities.

Executive Order 12866, Regulatory Planning and Review

    Under Executive Order 12866, 58 FR 51735, Oct. 4, 1993, a 
significant regulatory action is subject to OMB review and the 
requirements of the Executive Order. The Executive Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of 100 million or more, or 
may adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    This rule is not a ``significant regulatory action'' under 
Executive Order 12866; therefore, OMB has not reviewed it under that 
Order. As FEMA stated in the proposed rule, it would not have an annual 
effect on the economy of 100 million or more and FEMA knows of no other 
conditions that would qualify the rule as a ``significant regulatory 
action'' within the definition of section 3(f) of the Executive Order.
    As explained in the Regulatory Flexibility Act section, this 
interim final rule does not impact the amount of funding that will be 
provided by FEMA for management costs. Rather, the interim final rule 
simplifies and clarifies the processing and administration of 
management cost funding. The interim final rule will reduce the 
administrative burden to both grantees and FEMA by reducing the 
multiple methods of reimbursement from three to one. Further, grantees 
currently make numerous petitions for payment. Implementation of this 
interim final rule will greatly reduce the number of times grantees 
will need to petition to receive payment for management costs.
    This interim final rule does not materially alter the budgetary 
impact of the Public Assistance and Hazard Mitigation grant programs as 
the amount of funding available for management costs under this interim 
final rule is based on historical average obligations. Although there 
is a proposed cap on the amount of management costs that can be 
provided per declaration, the interim final rule provides a mechanism 
for waiver in extraordinary circumstances.
    Because this interim final rule simplifies, clarifies, and reduces 
the administrative burden to grantees and FEMA, there are no additional 
costs due to this regulatory action.

Executive Order 13132, Federalism

    Executive Order 13132 sets forth principles and criteria that 
agencies must adhere to in formulating and implementing policies that 
have federalism implications, that is, regulations that have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.'' Federal 
agencies must closely examine the statutory authority supporting any 
action that would limit the policymaking discretion of the States, and 
to the extent practicable, must consult with State and local officials 
before implementing any such action.
    FEMA reviewed the proposed rule under Executive Order 13132 and 
determined that the rule did not have ``substantial direct effects on 
the States'' and therefore did not have the type of federalism 
implications contemplated by the Executive Order. Four commenters 
disagreed, believing that there would be a shift of power and 
responsibilities. FEMA believes that the interim final rule is 
consistent with the terms of Executive Order 13132 in that it ``shall 
grant the States the maximum administrative discretion possible'' and 
``shall encourage States to develop their own policies to achieve 
program objectives'' as directed by the Executive Order. The interim 
final rule does not significantly affect the rights, roles, and 
responsibilities of States, involves no additional preemption of State 
law, and does not limit State policymaking discretion.

[[Page 57875]]

Executive Order 12898, Environmental Justice

    Under Executive Order 12898, Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations, 59 FR 7629, Feb. 16, 1994, FEMA has undertaken to 
incorporate environmental justice into its policies and programs. The 
Executive Order requires each Federal agency to conduct its programs, 
policies, and activities that substantially affect human health or the 
environment in a manner that ensures that those programs, policies, and 
activities do not have the effect of excluding persons from 
participation in, denying persons the benefits of, or subjecting 
persons to discrimination because of their race, color, or national 
origin. FEMA stated when it published the proposed rule that no action 
it could anticipate under the proposed rule would have a 
disproportionately high and adverse human health effect on any segment 
of the population. No commenter disagreed with this determination and 
accordingly, FEMA reiterates that the requirements of the Executive 
Order do not apply to this rule.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    Under Executive Order 13175, FEMA may not issue a regulation that 
is not required by statute, that significantly or uniquely affects the 
communities of Indian tribal governments, and that imposes substantial 
direct compliance costs on those communities, unless the Federal 
Government provides the funds necessary to pay the direct compliance 
costs incurred by the tribal government, or FEMA consults with those 
governments.
    This rule is required by statute, and, as FEMA stated when the 
proposed rule was published, it did not believe that the rule would 
significantly and uniquely affect the communities of Indian tribal 
governments, or the relationship between the Federal Government and 
Indian tribes, or the distribution of power and responsibilities 
between the Federal Government and Indian tribes. Moreover, the rule 
did not impose substantial direct compliance costs on tribal 
governments, nor did it preempt tribal law, impair treaty rights or 
limit the self-governing powers of tribal governments. FEMA received no 
comments disagreeing with this determination. The interim final rule 
will also not significantly and uniquely affect the communities of 
Indian tribal governments, or the relationship between the Federal 
Government and Indian tribes. Moreover, the rule does not impose 
substantial direct compliance costs on tribal governments, nor does it 
preempt tribal law, impair treaty rights or limit the self-governing 
powers of tribal governments.

List of Subjects

44 CFR Part 206

    Administrative costs, Administrative practice and procedure, 
Disaster assistance, Grant programs, Management costs, Reporting and 
recordkeeping requirements.

44 CFR Part 207

    Administrative costs, Administrative practice and procedure, 
Disaster assistance, Grant programs, Management costs, Reporting and 
recordkeeping requirements.

0
For the reasons set forth in the preamble, the Federal Emergency 
Management Agency amends 44 CFR chapter I as set forth below:

PART 206--FEDERAL DISASTER ASSISTANCE

0
1. Revise the part heading of 44 CFR part 206 as set forth above:

0
2. The authority citation for part 206 is revised to read as follows:

    Authority: Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121 through 5206; Reorganization Plan No. 
3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; Homeland Security 
Act of 2002, 6 U.S.C. 101; E.O. 12127, 44 FR 19367, 3 CFR, 1979 
Comp., p. 376; E.O. 12148, 44 FR 43239, 3 CFR, 1979 Comp., p. 412; 
E.O. 13286, 68 FR 10619, 3 CFR, 2003 Comp., p. 166.

0
3. Add new paragraph (b)(1)(iii)(K) to Sec.  206.207 to read as 
follows:

Sec.  206.207  Administrative and audit requirements.

* * * * *
    (b) * * *
    (1) * * *
    (iii) * * *
    (K) Determining the reasonable percentage or amount of pass-through 
funds for management costs provided under 44 CFR part 207 that the 
grantee will make available to subgrantees, and the basis, criteria, or 
formula for determining the subgrantee percentage or amount.
* * * * *

0
4. Remove paragraphs (a)(2), (a)(3), and (b); reserve paragraph (b); 
redesignate paragraph (a)(4) as paragraph (a)(2) and revise it; and add 
new paragraph (a)(3) to Sec.  206.228 to read as follows:

Sec.  206.228  Allowable costs.

* * * * *
    (a) * * *
    (2) Force Account Labor Costs. The straight- or regular-time 
salaries and benefits of a subgrantee's permanently employed personnel 
are not eligible in calculating the cost of eligible work under 
sections 403 and 407 of the Stafford Act, 42 U.S.C. 5170b and 5173. For 
the performance of eligible permanent restoration under section 406 of 
the Stafford Act, 42 U.S.C. 5172, straight-time salaries and benefits 
of a subgrantee's permanently employed personnel are eligible.
    (3) Administrative and management costs for major disasters and 
emergencies will be paid in accordance with 44 CFR part 207.
    (b) [Reserved]

0
5. Add new paragraph (b)(4)(xiv) to Sec.  206.437 to read as follows:

Sec.  206.437  State administrative plan.

* * * * *
    (b) * * *
    (4) * * *
    (xiv) Determine the percentage or amount of pass-through funds for 
management costs provided under 44 CFR part 207 that the grantee will 
make available to subgrantees, and the basis, criteria, or formula for 
determining the subgrantee percentage or amount.
* * * * *

0
6. Revise Sec.  206.439 to read as follows:

Sec.  206.439  Allowable costs.

    (a) General requirements for determining allowable costs are 
established in 44 CFR 13.22. Exceptions to those requirements as 
allowed in 44 CFR 13.4 and 13.6 are explained in paragraph (b) of this 
section.
    (b) Administrative and management costs for major disasters will be 
paid in accordance with 44 CFR part 207.

0
7. Add part 207 to read as follows:

PART 207--MANAGEMENT COSTS

Sec.
207.1 Purpose.
207.2 Definitions.
207.3 Applicability and eligibility.
207.4 Responsibilities.
207.5 Determination of management cost funding.
207.6 Use of funds.
207.7 Procedures for requesting management cost funding.
207.8 Management cost funding oversight.
207.9 Declarations before November 13, 2007.
207.10 Review of management cost rates.

    Authority: Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121 through 5206; Reorganization Plan No. 
3 of 1978, 43 FR 41943, 3 CFR, 1978

[[Page 57876]]

Comp., p. 329; Homeland Security Act of 2002, 6 U.S.C. 101; E.O. 
12127, 44 FR 19367, 3 CFR, 1979 Comp., p. 376; E.O. 12148, 44 FR 
43239, 3 CFR, 1979 Comp., p. 412; E.O. 13286, 68 FR 10619, 3 CFR, 
2003 Comp., p. 166.

Sec.  207.1  Purpose.

    The purpose of this part is to implement section 324 of the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act (Stafford 
Act), 42 U.S.C. 5165b.

Sec.  207.2  Definitions.

    Cap means the maximum dollar amount that may be provided to a 
grantee for management cost funds for a single declaration pursuant to 
Sec.  207.5(c) of this part.
    Chief Financial Officer (CFO) is the Chief Financial Officer of 
FEMA, or his/her designated representative.
    Cognizant Agency means the Federal agency responsible for 
reviewing, negotiating, and approving cost allocation plans or indirect 
cost proposals developed on behalf of all Federal agencies. The Office 
of Management and Budget (OMB) publishes a listing of cognizant 
agencies.
    Grant means an award of financial assistance making payment in 
cash, property, or in kind for a specified purpose, by the Federal 
Government to an eligible grantee.
    Grantee for purposes of this part means the government to which a 
Public Assistance (PA) or Hazard Mitigation Grant Program (HMGP) grant 
is awarded that is accountable for the use of the funds provided. The 
grantee is the entire legal entity even if only a particular component 
of the entity is designated in the grant award document. Generally, the 
State is the grantee. However, after a declaration, an Indian tribal 
government may choose to be a grantee, or may act as a subgrantee under 
the State for purposes of administering a grant under PA, HMGP, or 
both. When an Indian tribal government has chosen to act as grantee, it 
will also assume the responsibilities of a ``grantee'' under this part 
for the purposes of administering management cost funding.
    Hazard Mitigation Grant Program (HMGP) means the program 
implemented at part 206, subpart N of this chapter.
    HMGP lock-in ceiling means the level of HMGP funding available to a 
grantee for a particular disaster declaration.
    HMGP project narrative refers to the request submitted for HMGP 
funding.
    Indian tribal government is a Federally recognized governing body 
of an Indian or Alaska Native tribe, band, nation, pueblo, village, or 
community that the Secretary of Interior acknowledges to exist as an 
Indian tribe under the Federally Recognized Tribe List Act of 1994, 25 
U.S.C. 479a. This does not include Alaska Native corporations, the 
ownership of which is vested in private individuals.
    Indirect Costs means costs that are incurred by a grantee for a 
common or joint purpose benefiting more than one cost objective that 
are not readily assignable to the cost objectives specifically 
benefited.
    Lock-in means the amount of management cost funds available to a 
grantee for PA or HMGP, respectively, for a particular major disaster 
or emergency, as FEMA determines at 30 days, 6 months, and 12 months or 
upon calculation of the final HMGP lock-in ceiling, whichever is later.
    Management Costs means any indirect costs, administrative expenses, 
and any other expenses not directly chargeable to a specific project 
that are reasonably incurred by a grantee or subgrantee in 
administering and managing a PA or HMGP grant award. For HMGP, 
management cost funding is provided outside of Federal assistance 
limits defined at Sec.  206.432(b) of this chapter.
    Project refers to a project as defined at Sec.  206.201(i) of this 
chapter for PA or eligible activities as defined at Sec.  206.434(d) of 
this chapter for HMGP.
    Project Worksheet (PW) refers to FEMA Form 90-91, or any successor 
form, on which the scope of work and cost estimate for a logical 
grouping of work required under the PA program as a result of a 
declared major disaster or emergency is documented.
    Public Assistance (PA) means the program implemented at part 206, 
subparts G and H of this chapter.
    Regional Administrator is the head of a FEMA regional office, or 
his/her designated representative, appointed under section 507 of the 
Post-Katrina Emergency Management Reform Act of 2006 (Pub. L. 109-295). 
The term also refers to Regional Directors as discussed in Part 2 of 
this chapter.
    Stafford Act refers to the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act, as amended (42 U.S.C. 5121-5206).
    State is any State of the United States, the District of Columbia, 
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the 
Commonwealth of the Northern Mariana Islands.
    Subgrantee means the government or other legal entity to which a 
grantee awards a subgrant and which is accountable to the grantee for 
the use of the funds provided. Subgrantees can be a State agency, local 
government, private nonprofit organization, or Indian tribal 
government.

Sec.  207.3  Applicability and eligibility.

    Only PA and HMGP grantees with PA and HMGP grants awarded pursuant 
to major disasters and emergencies declared by the President on or 
after November 13, 2007 are eligible to apply to FEMA for management 
cost funding under this part.

Sec.  207.4  Responsibilities.

    (a) General. This section identifies key responsibilities of FEMA 
and grantees in carrying out section 324 of the Stafford Act, 42 U.S.C. 
5165b. These responsibilities are unique to the administration of this 
part and are in addition to common Federal Government requirements of 
grantees and subgrantees, consistent with OMB circulars and other 
applicable requirements, such as part 13 of this chapter.
    (b) FEMA. FEMA is responsible for:
    (1) Determining the lock-in amount for management costs in 
accordance with Sec.  207.5.
    (2) Obligating funds for management costs in accordance with Sec.  
207.5(b).
    (3) Deobligating funds provided for management costs not disbursed 
in accordance with Sec.  207.8(b).
    (4) Reviewing management cost rates not later than 3 years after 
this rule is in effect and periodically thereafter.
    (c) Grantee. The grantee must:
    (1) Administer management cost funds to ensure that PA and HMGP, as 
applicable, are properly implemented and closed out in accordance with 
program timeframes and guidance.
    (2) Determine the reasonable amount or percentage of management 
cost funding to be passed through to subgrantees for contributions to 
their costs for administering PA and HMGP projects and ensure that it 
provides such funds to subgrantees.
    (3) Address procedures for subgrantee management costs amount or 
percentage determination, pass through, closeout, and audit in the 
State administrative plan required in Sec.  206.207(b) of this chapter 
for PA and Sec.  206.437 of this chapter for HMGP.

Sec.  207.5  Determination of management cost funding.

    (a) General. This section describes how FEMA determines the amount 
of funds that it will contribute under this part for management costs 
for PA and/or HMGP for a particular major disaster or emergency.
    (b) Lock-in. FEMA will determine the amount of funds that it will 
make

[[Page 57877]]

available for management costs by a lock-in, which will act as a 
ceiling for funds available to a grantee, including its subgrantees.
    (1) Not earlier than 30 days and not later than 35 days from the 
date of declaration, FEMA will provide the grantee preliminary lock-in 
amount(s) for management costs based on the projections at that time of 
the Federal share for financial assistance for PA and HMGP, as 
applicable. In accordance with Sec.  207.7(c), FEMA will obligate 25 
percent of the estimated lock-in amount(s) to the grantee.
    (2) For planning purposes, FEMA will revise the lock-in amount(s) 
at 6 months after the date of the declaration. In accordance with Sec.  
207.7(e), FEMA may obligate interim amount(s) to the grantee.
    (3) FEMA will determine the final lock-in amount(s) 12 months after 
date of declaration or after determination of the final HMGP lock-in 
ceiling, whichever is later. FEMA will obligate the remainder of the 
lock-in amount(s) to the grantee in accordance with Sec.  207.7(f).
    (4) Rates. (i) For major disaster declarations, FEMA will determine 
the lock-in for PA based on a flat percentage rate of the Federal share 
of projected eligible program costs for financial assistance pursuant 
to sections 403, 406, and 407 of the Stafford Act, 42 U.S.C. 5170b, 
5172, and 5173, respectively, but not including direct Federal 
assistance. For major disaster declarations on or after November 13, 
2007, the PA rate will be 3.34 percent.
    (ii) For major disaster declarations, FEMA will determine the lock-
in for HMGP based on a flat percentage rate of the Federal share of 
projected eligible program costs under section 404 of the Stafford Act, 
42 U.S.C. 5170c. For major disaster declarations on or after November 
13, 2007, the HMGP rate will be 4.89 percent.
    (iii) For emergency declarations, FEMA will determine the lock-in 
for PA based on a flat percentage rate of the Federal share of 
projected eligible program costs for financial assistance (sections 502 
and 503 of the Stafford Act, 42 U.S.C. 5192 and 5193, respectively), 
but not including direct Federal assistance. For emergency declarations 
on or after November 13, 2007 the rate will be 3.90 percent.
    (c) The dollar amount provided to a grantee for management cost 
funds for a single declaration will not exceed 20,000,000, except as 
described in paragraphs (d) and (e) of this section.
    (d) The grantee must justify in writing to the Regional 
Administrator any requests to change the amount of the lock-in or the 
cap, extend the time period before lock-in, or request an interim 
obligation of funding at the time of the 6-month lock-in adjustment. 
The Regional Administrator will recommend to the Chief Financial 
Officer whether to approve the extension, change, or interim 
obligation. Extensions, changes to the lock-in, or interim obligations 
will not be made without the approval of the Chief Financial Officer.
    (e) The Chief Financial Officer may change the amount of the lock-
in or the cap, or extend the time before lock-in, if the Chief 
Financial Officer determines that the projections used to determine the 
lock-in were inaccurate to such a degree that the change to the lock-in 
would be material, or for other reasons in his or her discretion that 
may reasonably warrant such changes. The Chief Financial Officer will 
not make such changes without consultation with the grantee and the 
Regional Administrator.

Sec.  207.6  Use of funds.

    (a) The grantee or subgrantee must use management cost funds 
provided under this part in accordance with Sec.  13.22 of this chapter 
and only for costs related to administration of PA or HMGP, 
respectively. All charges must be properly documented in accordance 
with Sec.  207.8(f).
    (b) Indirect costs may not be charged directly to a project or 
reimbursed separately, but rather are considered to be eligible 
management costs under this part.
    (c) Activities and costs that can be directly charged to a project 
with proper documentation are not eligible for funding under this part.

Sec.  207.7  Procedures for requesting management cost funding.

    (a) General. This section describes the procedures to be used by 
the grantee in requesting management cost funding.
    (b) State Administrative Plan Requirements. State administrative 
plans, as required in Sec.  206.207(b) of this chapter for PA and Sec.  
206.437 of this chapter for HMGP, must be amended to include procedures 
for subgrantee management costs amount or percentage determination, 
pass through, closeout, and audit, as required by Sec.  207.4(c)(3) 
before management cost funds will be provided under this part.
    (c) Initial Funding Request Submission. Upon notification of the 
preliminary lock-in amount(s) for management costs based on the Federal 
share of the projected eligible program costs for financial assistance 
at that time for PA and HMGP, as applicable, the grantee must submit 
its initial management cost funding request to the Regional 
Administrator. FEMA must receive the initial funding request before it 
will provide any management cost funds under this part.
    (1) For PA management costs, funding requests shall be submitted 
using a PW.
    (2) For HMGP management costs, funding requests shall be submitted 
using an HMGP project narrative.
    (d) Request Documentation. The grantee is required to submit, no 
later than 120 days after the date of declaration, documentation to 
support costs and activities for which the projected lock-in for 
management cost funding will be used. In extraordinary circumstances, 
FEMA may approve a request by a grantee to submit support documentation 
after 120 days. FEMA will work with the grantee to approve or reject 
the request within 30 days of receipt of the request. If the request is 
rejected, the grantee will have 30 days to resubmit it for 
reconsideration and approval. FEMA will not obligate the balance of the 
management costs lock-in pursuant to a final funding request as 
described in paragraph (f) of this section or any interim amounts as 
allowed under paragraph (e) of this section unless the grantee's 
documentation is approved. The documentation must include:
    (1) A description of activities, personnel requirements, and other 
costs for which the grantee will use management cost funding provided 
under this part;
    (2) The grantee's plan for expending and monitoring the funds 
provided under this part and ensuring sufficient funds are budgeted for 
grant closeout; and
    (3) An estimate of the percentage or amount of pass-through funds 
for management costs provided under this part that the grantee will 
make available to subgrantees, and the basis, criteria, or formula for 
determining the subgrantee percentage or amount (e.g., number of 
projects, complexity of projects, X percent to any subgrantee).
    (e) Interim Funding Request. If the grantee can justify a bona fide 
need for an additional obligation of management cost funds at 6 months, 
the grantee may submit a request to the Regional Administrator. Any 
interim obligations by FEMA must be approved by the Chief Financial 
Officer and will not exceed an amount equal to 10 percent of the 6-
month lock-in amount, except in extraordinary circumstances.
    (f) Final Funding Request. Upon notification of the final lock-in 
amount(s), the grantee must submit a final management cost funding 
request to the Regional Administrator. Any

[[Page 57878]]

necessary revisions to supporting documentation must be attached to the 
final funding request.

Sec.  207.8  Management cost funding oversight.

    (a) General. The grantee has primary responsibility for grants 
management activities and accountability of funds provided for 
management costs as required by part 13 of this chapter, especially 
Sec. Sec.  13.20 and 13.36. The grantee is responsible for ensuring 
that subgrantees meet all program and administrative requirements.
    (b) Period of availability. (1) For major disaster declarations, 
the grantee may expend management cost funds for allowable costs for a 
maximum of 8 years from the date of the major disaster declaration or 
180 days after the latest performance period date of a non-management 
cost PA PW or HMGP project narrative, respectively, whichever is 
sooner.
    (2) For emergency declarations, the grantee may expend management 
cost funds for allowable costs for a maximum of 2 years from the date 
of the emergency declaration or 180 days after the latest performance 
period of a non-management cost PA PW, whichever is sooner.
    (3) The period of availability may be extended only at the written 
request of the grantee, with the recommendation of the Regional 
Administrator, and with the approval of the Chief Financial Officer. 
The grantee must include a justification in its request for an 
extension, and must demonstrate that there is work in progress that can 
be completed within the extended period of availability. In no case 
will an extended period of availability allow more than 180 days after 
the expiration of any performance period extensions granted under PA or 
HMGP for project completion. FEMA will deobligate any funds not 
liquidated by the grantee in accordance with Sec.  13.23 of this 
chapter.
    (c) Reporting requirements. The grantee must provide quarterly 
progress reports on management cost funds to the Regional Administrator 
as required by the FEMA-State Agreement.
    (d) Closeout. The grantee has primary responsibility for the 
closeout tasks associated with both the program and subgrantee 
requirements. Complying with each program's performance period 
requirement, the grantee must conduct final inspections for projects, 
reconcile subgrantee expenditures, resolve negative audit findings, 
obtain final reports from subgrantees and reconcile the closeout 
activities of subgrantees with PA and HMGP grant awards.
    (e) Audit requirements. Uniform audit requirements in Sec.  13.26 
of this chapter apply to all assistance provided under this part.
    (f) Document Retention. In compliance with State law and procedures 
and with Sec.  13.42 of this chapter, grantees must retain records, 
including source documentation to support expenditures/costs incurred 
for management costs, for 3 years from the date of submission of the 
final Financial Status Report to FEMA that is required for PA and HMGP. 
The grantee is responsible for resolving questioned costs that may 
result from audit findings during the 3-year-record-retention period 
and returning any disallowed costs from ineligible activities.

Sec.  207.9  Declarations before November 13, 2007.

    (a) General. This section describes how FEMA provides 
administrative and management cost funding for PA and HMGP for major 
disasters or emergencies declared before November 13, 2007.
    (b) Eligible direct costs. Eligible direct costs to complete 
approved activities are governed by part 13 of this chapter. The 
eligible direct costs for administration and management of the program 
are divided into two categories as follows:
    (1) Grantee. (i) Statutory administrative costs. FEMA may provide 
funds to the grantee to cover the extraordinary costs incurred in 
preparing project worksheets or applications, final inspection reports, 
quarterly reports, final audits, and related field inspections by State 
employees, including overtime pay and per diem and travel expenses, but 
not including regular time for such employees. FEMA will base the funds 
on the following percentages of the total amount of assistance provided 
(Federal share) for all subgrantees in the State under sections 403, 
404, 406, 407, 502, and 503 of the Stafford Act (42 U.S.C. 5170b, 
5170c, 5172, 5173, 5192, and 5193, respectively):
    (A) For the first 100,000 of total assistance provided (Federal 
share), 3 percent of such assistance.
    (B) For the next 900,000, 2 percent of such assistance.
    (C) For the next 4,000,000, 1 percent of such assistance.
    (D) For assistance over $5,000,000, one-half of 1 percent of such 
assistance.
    (ii) State management administrative costs. Except for the items 
listed in paragraph (b)(1)(i) of this section, other administrative 
costs will be paid in accordance with Sec.  13.22 of this chapter. The 
grantee and FEMA will share such costs under the cost share provisions 
of applicable PA and HMGP regulations.
    (2) Subgrantee. The grantee may provide funds to the subgrantee to 
cover necessary costs of requesting, obtaining, and administering 
Federal disaster assistance subgrants, based on the following 
percentages of net eligible costs under sections 403, 404, 406, 407, 
502, and 503 of the Stafford Act (42 U.S.C. 5170b, 5170c, 5172, 5173, 
5192, and 5193, respectively), for an individual applicant (applicants 
in this context include State agencies):
    (i) For the first $100,000 of net eligible costs, 3 percent of such 
costs.
    (ii) For the next $900,000, 2 percent of such costs.
    (iii) For the next $4,000,000, 1 percent of such costs.
    (iv) For those costs over $5,000,000, one-half of 1 percent of such 
costs.
    (c) Eligible indirect costs: (1) Grantee. Indirect costs of 
administering the disaster program are eligible in accordance with the 
provisions of part 13 of this chapter and OMB Circular No. A-87, if the 
grantee provides FEMA with a current Indirect Cost Rate Agreement 
approved by its Cognizant Agency.
    (2) Subgrantee. No indirect costs of a subgrantee are separately 
eligible because the percentage allowance in paragraph (b)(2) of this 
section covers necessary costs of requesting, obtaining and 
administering Federal assistance.
    (d) Availability.
    (1) For major disaster declarations, FEMA will reimburse grantee 
eligible costs as described in this section at (b)(1)(ii) and (c)(1) 
for a maximum of 8 years from the date of the major disaster 
declaration or 180 days after the latest performance period date of a 
non-management cost PA PW or predecessor form or HMGP project 
narrative, respectively, whichever is sooner.
    (2) For emergency declarations, FEMA will reimburse grantee 
eligible costs as described in this section at (b)(1)(ii) and (c)(1) 
for a maximum of 2 years from the date of the emergency declaration or 
180 days after the latest performance period of a non-management cost 
PA PW or predecessor form, whichever is sooner.
    (3) The reimbursement of grantee eligible costs as described in 
this section at (b)(1)(ii) and (c)(1) may be provided by FEMA after the 
periods of availability described in this section only at the written 
request of the grantee, with the recommendation of the Regional 
Administrator, and with the approval of the Chief Financial Officer. 
The grantee must include a justification in its request for further 
reimbursement, and must demonstrate that there is work in progress that 
can be completed

[[Page 57879]]

within the extended period of reimbursement. In no case will 
reimbursement be provided after 180 days after the expiration of any 
performance period extensions granted under PA or HMGP for project 
completion.

Sec.  207.10  Review of management cost rates.

    (a) FEMA will review management cost rates not later than 3 years 
after this rule is in effect and periodically thereafter.
    (b) In order for FEMA to review the management cost rates 
established, and in accordance with part 13 of this chapter, the 
grantee and subgrantee must document all costs expended for management 
costs (including cost overruns). After review of this documentation, 
FEMA will determine whether the established management cost rates are 
adequate for the administration and closeout of the PA and HMGP 
programs.

    Dated: October 4, 2007.
R. David Paulison,
Administrator, Federal Emergency Management Agency.
 [FR Doc. E7-20035 Filed 10-10-07; 8:45 am]

BILLING CODE 9110-49-P