Source: https://ows.doleta.gov/dmstree/gal/gal94/gal_05-94.htm
Timestamp: 2017-07-27 20:32:21
Document Index: 642659909

Matched Legal Cases: ['art 29', 'art 97', 'art 29', 'art 97', 'art 29', 'art 97', 'art 97', 'art 97', 'art 205']

U.S. DEPARTMENT OF LABOREmployment and Training AdministrationWashington, D. C. 20210 CLASSIFICATION Admin. & Mgmt.
CORRESPONDENCE SYMBOL TMCS
ISSUE DATE Jan. 24, 1994
Purpose. To provide policy guidance, interpretations of existing regulations and other requirements applicable to the acquisition, use, and disposition of real property acquired or amortized with funds provided under Section 903 of the Social Security Act (Reed Act), Title III of the Social Security Act, or the Wagner-Peyser Act. Table of Contents
Purpose.Table of Contents.References.
UI and ES grant funds.AS&T Funds.Contributions/Participation.
Adjusted Contributions.Equity or Share.
Background.Applicable Requirements.
Reed Act Funds.(1) General.
(b) Rearrangements & alterations.	(c) Rental rate systems.
Example 1 - Allocation of equity in sale
Example 2 - Replacement involving combined AS&T
funds and excess equity from property to be
Example 4 - Calculation of Federal share in the
original acquisition cost plus improvements of
real property currently in program use.
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Definitions. UI and ES Grant Funds. Grant funds provided to States under Title III of the Social Security Act for administration of State unemployment insurance (UI) programs and the Wagner-Peyser Act for administration of State employment service (ES) programs. (Note: The ES Manual refers to UI and ES grant funds as granted funds. The UI and ES programs are collectively known as the employment security program.)
Administrative, Staff, and Technical (AS&T) funds. Funds provided in a single award prior to 1983 under the authority of both acts for the use of both the UI and ES programs which cannot be specifically identified with either program, without disproportionate effort, are hereinafter referred to as AS&T funds. Contributions/Participation. Contributions to or participation in the acquisition cost of real property by a grant, Reed Act funds, or other source is the amount provided by each source to acquire or make capital improvements to real property. Each such contribution or participation is deemed to be a share (see 29 CFR 97.3 for definition) and is expressed as a percentage of the acquisition cost of the property and its improvements.
Adjusted Contributions. Contributions as defined in Section 4.c. above plus (or minus) amounts provided by (or paid to) other sources of funds, by amortization or otherwise, to pay off or replace such contributions (see Section 7.b.(5)). Equity or Share. The terms equity, DOL equity, Reed Act equity, share, DOL share and Reed Act share are used with the following meanings throughout this General Administration Letter (GAL):
(i) Equity means the net value of an interest in property (value after all obligations are paid off).; (ii) Share means the contribution to the acquisition cost attributed to each source of funds, expressed as a percentage.;
(iv) Reed Act equity means the equity attributable to the State's unemployment fund's share of the fair market value of real property when it is no longer to be used for employment security purposes. Such equity is based on the adjusted contributions of Reed Act funds (see Section 7.b.(5)) to the acquisition cost of the property and any capital improvements. Proceeds. The net dollar value received or due from the disposition of real property, as provided in 29 CFR 97.3(c)(1) and (2). Since 29 CFR 97.31(c) uses proceeds to refer to both cash and non-cash proceeds, proceeds, for purposes of this GAL, means the net dollar value of all cash and non-cash proceeds. Cash proceeds, for purposes of this GAL, means the net proceeds expressed in dollars, as provided in 29 CFR 97.31(c)(2). Background. In 1986, the Employment and Training Administration (ETA) issued FM 108-86 to provide guidance to ETA Regional Offices on the acquisition, use, and disposition of State Employment Security Agency (SESA) real property, with emphasis on the use and amortization of Reed Act funds. (1) The Regional Offices were asked to furnish information copies of the FM to the SESAs. FM 108-86 did not establish new requirements; but rather, restated existing requirements contained in statutes, the ES Manual, 41 CFR Part 29-70 and OMB Circular A-87, as well as agency policies that evolved over time.
In 1989, DOL's Office of Inspector General (OIG) reviewed DOL equity in SESA real property. OIG found instances of inadequate State property records and instances where States had reduced or terminated employment security use of real property without compensating DOL for its equity where the property had been acquired or amortized with UI and/or ES grant funds, or the State's unemployment fund for the Reed Act equity where the property had an unamortized balance of Reed Act funds. This GAL updates previous ETA policies and guidance on the subject of real property acquired by States using UI and ES grant funds. Since the use of Reed Act funds to acquire real property is an integral part of the subject, Reed Act requirements are also dealt with at length. An appendix at the end of the GAL provides four illustrations showing how to calculate DOL, Reed Act, and other equity in real property being disposed of or replaced by other property, or where there is a significant reduction in UI (or ES) use.
i) DOL regulations at 29 CFR Part 97, which contain
administrative requirements applicable to grants to
State governments; ii) OMB Circular No. A-87, which contains uniform
Federal allowable cost standards applicable to grants
to State governments; and
iii) this GAL, which contains interpretations of these
requirements. The preceding requirements provide that if real property is acquired or amortized with UI and/or ES grant funds, the State must comply with the real property and procurement regulations at 29 CFR Sections 97.31 and 97.36, respectively.
Acquisition of SESA Real Property. Reed Act Funds.
(1) General. Reed Act funds are funds transferred to the accounts of the States in the Unemployment Trust Fund (UTF) pursuant to Section 903 of the Social Security Act. Under Section 903(c)(2) of the Act, a State legislature may appropriate Reed Act funds for employment security administration expenses including acquiring real property for employment security purposes (see Section 3020, Pt. IV, ES Manual). When used in conjunction with the amortization arrangements described in Section 7.b.(5) below, Reed Act funds act as revolving funds that may be used to acquire SESA real property. (2) Appropriation. Reed Act funds used to acquire real property must be appropriated by the State's legislature. The State appropriation act must satisfy the requirements of Section 903(c)(2) of the Social Security Act, Sections 3001-3040, Part IV, ES Manual, and UIPL 12-91, which supersedes parts of the ES Manual and contains current recommended draft language for Reed Act appropriations. The designation 'Reed Act funds' refers to funds transferred to the State pursuant to Section 903(a) including previously amortized Reed Act funds, and amounts restored to Reed Act status, pursuant to paragraph (c)(3) of Section 903. Other funds in a State's UTF account, are not available for appropriation. No DOL approval is needed for the appropriation and use of Reed Act funds. Also see Sections 9.d.(1) (replacement of Reed Act real property) and 9.e.(1). UI and ES Grant Funds. (1) Total Spending Limitation. Under the space costs provision of OMB Circular No. A-87 (Attachment B, Para. C.2.), the annual amount that may be charged to UI or ES grant funds for occupying a publicly- or privately-owned building may not exceed the annual rental cost of comparable space and facilities in a privately-owned building in the same locality. This limitation applies to any one or combination of the following:
(b) Rearrangements and alterations/Capital
improvements. Costs of rearrangements and alterations required specifically for UI and/or ES purposes or which materially increase the value or useful life of property;
(e) Reed Act amortization. Repayments (amortization) of Reed Act funds used to acquire real property as authorized under 20 CFR 652.8(d)(7) and the PBP (1992 PBP, Para. VI.C.2.c.) (see paragraph (5) below); (f) Amortization of other funds. Repayments of other non-Federal funds, exclusive of interest, used to acquire real property, such as the amortization of the principal portion of State bonds or of other funds borrowed from public or private sources (2); (g) Lease-purchase. Allowable costs under lease-purchase, lease with option to purchase, or other commercial capital lease arrangements which create a material equity in real property; (3) and
(h) Depreciation or use allowance. Depreciation or use allowance for space occupied in publicly-owned buildings (see paragraph (6) below). (4) (2) Allocation of Charges Between UI and ES. The amount of UI and ES grant funds used in any fiscal year for the acquisition or amortization of a particular unit of real property shall be proportionate to the use of the property by each program.
(4) Acquisitions by Cash Purchase. Because of the total expenditure limitation in (1), States will normally be unable to use UI and ES grant funds for cash purchases of land and buildings. (5) Amortization. States may acquire real property with Reed Act or other non-Federal funds under arrangements in which the original fund source used to purchase the property is amortized (or repaid) with UI and/or ES grant funds. A Reed Act amortization arrangement is a repayment arrangement in which a SESA, instead of paying bondholders or other creditors, makes periodic payments of UI and/or ES grant funds to the State's account in the Unemployment Trust Fund (UTF). Interest costs incurred under real property amortization arrangements are unallowable except under certain rental rate or equivalent systems (see paragraph (3) above).
Both the 1989 and 1990 UI PBP and Wagner-Peyser regulations authorized the use of UI and ES grant funds for Reed Act amortization but did not require prior DOL approval of such expenditures. These provisions only applied to Federal actions designated as prior approvals and not to Federal actions designated as disposition instructions. On October 1, 1988, 41 CFR Part 29-70 was replaced by the 'common rule' (codified for DOL at 29 CFR Part 97) for grants to governmental entities. As specified at 29 CFR 97.5, the 'common rule' superseded existing regulations and other issuances that were inconsistent with its provisions. As a result, the 1983 delegation of prior approval authority for Wagner-Peyser activities was superseded as of October 1, 1988. An acquisition of real property after September 30, 1988, currently being amortized or to be amortized with Federally granted funds which did not receive the prior approval of DOL, should be brought to the attention of the appropriate DOL Regional Office for approval of continued amortization arrangements.
(8) Capital Improvements. For any capital improvement that materially increases the value or useful life of real property (whether paid by grant funds or otherwise) and that significantly alters the existing Federal share, DOL reserves the right to require the grantee to obtain one or more independent appraisals to determine the fair market value at the time of and as a result of the capital improvement. The fair market value as determined by such appraisals may be used to establish the revised shares. A significant alteration of the Federal share, for purposes of this GAL, is defined as any capital improvement where the cost of the improvement would either reduce the Federal share by 10% or more or estimated to affect the current Federal equity by $100,000 or more. Use of SESA Real Property. Reduction in Utilization. Reed Act funds and UI and ES granted funds may be used for office space to the extent that it is used for authorized program purposes (See Section 7.b.(2)). Therefore, if a significant and permanent reduction occurs in UI utilization of space acquired with UI funds, the State must dispose of the excess space or replace it with property whose size is appropriate to the program's needs or take other appropriate corrective actions to bring DOL equity, attributable to UI grants, and UI occupancy into balance (See Section 9.c., Disposition Instructions). The same is true for significant and permanent reductions in ES use of space acquired with ES funds.
Comparison with 41 CFR Part 29-70. Under 41 CFR 29-70.215-2(b) and the first paragraph of 41 CFR 29-70.215-2(c), DOL could permit SESA grant-funded real property to be used for non-employment security purposes without compensation. Since this option is not available under 29 CFR Part 97, all real property acquired with UI and/or ES grant funds, including property acquired before the effective date of 29 CFR Part 97, should be used and disposed of in accordance with 97.31(b) and (c). Clauses to this effect were inserted into the UI PBP and the ES Reimbursable Grant Agreements. SESAs should review the use of all grant-funded real property to determine what properties, if any, are not being used in accordance with 29 CFR Part 97 and to request disposition instructions where appropriate. Income. There are no limitations on the amount of rent that can be charged commercial tenants occupying excess SESA space. The State, however, must exhibit sound judgment in its decisions to rent to the commercial market. If the excess space is used by other Federally-supported programs, the costs the other Federally-supported programs may charge to their grants is limited to those allowed by the applicable cost principles. For example, if the space is used by the State in administering a grant that is subject to OMB Circular No. A-87, then Attachment B. Para. C.2.a. (Rental Cost) of that Circular is applicable. If the space is used for the JTPA program, the JTPA cost principles determined by the Governor pursuant to 20 CFR 627.435 are applicable.
Disposition of SESA Real Property. Allocation of Proceeds. When real property acquired or amortized with UI and/or ES granted funds ceases to be used for its respective program purposes, it must be sold, exchanged for replacement property, or otherwise disposed of as directed by DOL disposition instructions issued in accordance with 29 CFR 97.31(c). Under Section 97.31(c), each grant fund source's share of the proceeds from the sale or other disposition of the property is determined on the basis of its proportional participation in the cost of the property. Comparable treatment is accorded the Reed Act share of the proceeds (See Section 7.b.(5) on adjusting contributions to cost).
Prior to the issuance of OMB Circular No. A-87 in 1968, DOL would approve an amortization arrangement only if the State assured that the SESA could occupy that space or space of equivalent quality and quantity 'rent free' when amortization was completed, paying only for operation and maintenance costs. Since the Circular did not authorize continued use of the rent-free space requirement, DOL stopped using such an assurance and now relies exclusively on 29 CFR 97.31(c) to protect its equity interests in SESA real property. Disposition Instructions.
(a) retain title to the property and compensate DOL for its equity, in accordance with 29 CFR 97.31(c)(1); (b) replace the property with other property, using the proceeds from the disposition of the vacated property (6) as an offset to the cost of the replacement property, in accordance with 29 CFR 97.31(c)(1), with respective equities transferred to the replacement property;
(c) sell the property and compensate DOL for its equity in accordance with 29 CFR 97.31(c)(2); or (d) transfer the property to DOL or its designee, in which case the State will be paid by DOL to compensate it for any State equity in the property in accordance with 29 CFR 97.31(c)(3).
(2) UI and ES Grant Funds. A State may use the proceeds from the disposition of SESA real property that was acquired or amortized with UI and/or ES grant funds as an offset to the purchase price of replacement property subject to the following: (a) DOL disposition instructions. The replacement must be in accordance with DOL disposition instructions. (7) The grantee's request to DOL for disposition instructions should be accompanied by a plan for the disposition of the property to be replaced and the acquisition of the replacement property. The disposition-acquisition plan should cover the principal elements of the replacement, including location, projected cost, projected use by program of the replacement property, value of the equity transferred from the disposed property (by program), and a schedule for all significant events in the move to the replacement property. The plan may be amended at the discretion of the Department of Labor. (b) Utilization for UI or ES program purposes. The replacement property must serve the same program(s) as the disposed property. Therefore, only the portion of the proceeds that are attributable to UI funding may be used for UI purposes in the replacement property; the same treatment must be accorded the ES portion of the proceeds. Proceeds attributable to pre-1983 AS&T funds may be used for either UI or ES purposes provided they are identified as either UI or ES equity in the replacement property at the time of replacement and thereafter accounted for as such.
(c) Additional UI or ES cost. The amount of current or future UI grant funds that may be used to acquire or amortize replacement real property may not exceed the DOL equity attributable to the UI portion of the cost of the replacement real property (see Section 7.b.(2)) less the UI share of the proceeds from the disposed property, subject to the total spending limitation in Section 7.b.(1) above. The same treatment must be accorded costs charged to ES grant funds. (d) Location. The replacement property must be in the same State as the property that has been disposed of but does not have to serve or be located in the same geographic locality if there are valid program-related reasons for the replacement action, such as an increased need for service in one area and a decreased need in another, or because the replacement will reduce the grantee's net space costs. (e) Retention period. The proceeds resulting from the disposition of real property should be immediately used in the acquisition of the replacement property. However, DOL will permit retention of the proceeds in an interest-bearing escrow or other interest-bearing restricted account until the end of the Federal fiscal year in which disposition of the subject property occurred in order to allow the State to complete the actions involved in securing replacement property. Such interest-bearing accounts should yield interest equal to or greater than the rate required by 31 CFR Part 205, the regulations implementing the Cash Management Improvement Act (CMIA). Interest earned on the proceeds must be used in the acquisition of the replacement property and included as DOL equity. (Note that proceeds of a Reed Act equity may not be handled in the same manner. See Section 9.d.(1)).
(g) Use of proceeds after replacement. If the property being replaced is worth more than the replacement, the excess cash proceeds received or equivalent cash shall be handled in accordance with Section 9.e.(2). (h) Amortization acceleration. Proceeds from the disposition of SESA real property may not be used to accelerate the amortization of Reed Act or other fund source used to acquire other real property.
Deposit and Subsequent Use of Cash Proceeds. (1) Reed Act Funds. The Reed Act share of cash proceeds received from the sale or other disposition of real property must immediately be deposited in the State's account in the Unemployment Trust Fund (Section 303(a)(4) of the Social Security Act and Section 3304(a)(3) of the Internal Revenue Code of 1986). In addition, any portion of the Reed Act share of the proceeds from a disposition action that is not used for replacement property, as provided in Section 9.d.(1), must be immediately deposited in the State's account in the Unemployment Trust Fund. As Section 7.a.(2) states, however, only the adjusted contribution of Reed Act funds to the cost of the property may be credited as Reed Act funds. The remainder of the Reed Act share of the cash proceeds, if any, may not be credited as Reed Act funds and must be used solely for the payment of unemployment benefits. Failure to immediately deposit the applicable Reed Act proceeds into the Unemployment Trust Fund may be cause for the Secretary of Labor to commence conformity/compliance proceedings and to assess interest on the amount outstanding.
Disposition of Real Property with Reed Act Equity and No UI or ES Grant Funds Equity. (1) General. Some States have chosen not to use UI or ES grant funds to amortize SESA real property acquired with Reed Act or other non-Federal funds and used for UI or ES purposes. There is no DOL equity in this property and it may be sold or otherwise disposed of without obtaining DOL approval or DOL disposition instructions.