Opinion ID: 711196
Heading Depth: 3
Heading Rank: 1

Heading: The ICA and the Pell Grant Program

Text: 12 CSU argues that Pell Grant funds are grants as defined by the ICA, and thus it is not accountable for retained interest earned on Pell Grant funds pending disbursement. In the 1983 version of the ICA, Sec. 6503 provides that [a] State is not accountable for interest earned on grant money pending its disbursement for program purposes. Section 6501(4)(A) defines grant as: 13 money ... that is paid or provided by the United States Government under a fixed annual or total authorization, to a State, to a local government, or to a beneficiary under a plan or program administered by a State or a local government that is subject to approval by an executive agency, if the authorization 14 . . . . . 15 (ii) specifies directly, or establishes by means of a formula, the amount that may be provided to the State or local government, or the amount to be allotted for use in each State by the State, local government, and beneficiaries. 16 The language of 31 U.S.C. Sec. 6501(4)(A) may be distilled into a three-pronged test to determine if certain federal funds are considered to be grants under the ICA: (1) the money is provided by the federal government under a fixed annual or total authorization; (2) the federal aid program is administered by a State or a local government under a program that was approved by an executive agency; and (3) the authorization statute for the federal aid program specifies directly, or establishes by means of a formula, the amount to be provided or allotted for use in each state. 17 According to the Department, Pell Grant funds are not grants under the ICA because the second and third criteria are not met. The Department contends that Pell Grant funds do not satisfy the second prong of the ICA because universities do not administer the Pell Grant program in the manner contemplated by the ICA. 18 A review of the ICA and the Pell Grant authorizing statute in force during the audit period indicates that the nature of Pell Grant funds differ from federal grants contemplated under the ICA. The grants that are the subject of the ICA are grants to states, local governments, or beneficiaries under a state plan or program administered by the state. A state plan or program must comply with the conditions set forth by the executive agency carrying out the federal program. 19 An example of such a program is the Low-Income Home Energy Assistance Program, 42 U.S.C. Secs. 8621-8629 (1989). The Low-Income Home Energy Assistance Program is a program which provides grants to beneficiaries under a state plan or program administered by the state. In order to participate in the Low-Income Home Energy Assistance Program, a state must submit an application to the Secretary of Health and Human Services. As part of the application process, a state must submit a plan, for the Secretary's approval, which describes eligibility requirements to be used by the state and the methods the state will employ to administer the plan. 20 The Pell Grant Program, however, is a program which provides grants directly from the federal government to individual students who meet the eligibility requirements outlined in the Pell Grant statute. The students submit applications for Pell Grants which are evaluated under the strict guidelines set by the Secretary in 20 U.S.C. Sec. 1070a(f). Although universities where the eligible students attend may process student applications, the eligibility determinations are made in accordance with the guidelines set by the Secretary. Unlike the Low-Income Home Energy Assistance Program, under the Pell Grant Program the universities do not submit applications or plans for administering the program to the Secretary. Further, the amount of Pell Grant funds that a university may access in a given year is based solely on the amount that is granted to each eligible student attending that university. 20 U.S.C. Sec. 1070a(a)(1). Pell Grants are grants directly from the federal government to eligible students, and are not administered by the state under the ICA. CSU and other participating universities act as mere conduits for disbursing Pell Grants from the Secretary to the students. 21 The Secretary is authorized under 20 U.S.C. Sec. 1070a to administer the Pell Grant Program. A reasonable interpretation of the statute by the Secretary, who is authorized to administer it, is entitled to deference. Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). As such, the Secretary's determination that the universities do not administer the Pell Grant Program as contemplated under the ICA is given its due weight. 22 Moreover, Pell Grants are available to eligible students attending eligible institutions. State universities are not the only institutions deemed eligible under this statute. 20 U.S.C. Secs. 1088, 1094. Eligible students attending private universities are also eligible for Pell Grants. If CSU's argument is accepted, then under the ICA, state universities would be exempt from accounting for any interest earned on undisbursed Pell Grant funds, while private universities would have to account for any interest earned on similar funds. There is no justification for state universities gaining a financial windfall from the Pell Grant Program. It is apparent that funds to be disbursed to students under the Pell Grant Program are not grants as contemplated by the ICA. 23 Because we have determined that Pell Grants are not grants under the ICA, we do not reach the third prong of the ICA requirement. We do, however, reach the issue of whether the Secretary's method of calculating retained interest was arbitrary.