DAB Decision 79
January 31, 1980 Michigan Department of Social Services; Docket Nos.
78-67-Ml-HD, 78-132-MI-HD, 79-67-MI-HD, 79-199-MI-HD; Decision No. 79
Kelly, Bernard E.; Malone, Thomas Mason, Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16, Appendix.)
This decision and our Decision Nos. 76, 77, and 78 involve parallel
issues - whether non-expendable personal property must first be
capitalized and depreciated before it is subject to the appropriate rate
of FFP. For the reasons stated fully in Decision No. 76, the Board
affirmed the disallowances.
The question whether the Board lacks the jurisdiction or authority to
determine whether a formally promulgated regulation of HEW contradicts
the Social Security Act was not reached.
DECISION
These are cases that are being considered jointly because they emanate
from the same HEW agency and involve the same issue - whether the State
may receive Federal financial participation (FFP) at the rate of 75% of
the full value of non-expendable personal property which is purchased as
part of an indirect cost pool and allocated in part to the Office of
Human Development Services (OHDS) or whether the value of the property
must first be capitalized and depreciated. The principal issue in these
cases is parallel to that discussed in our decisions in 78-70-MI-CS and
79-159-MI-CS (Decision No. 76), 78-158-MI-SS (Decision No. 77), and
78-27-Ml-HC, 78-116-MI-HC, 79-45-MI-HC, and 79-46-Ml-HC (Decision No.
78).
Procedural Background
By letters dated June 22, 1978 (78-67-MI-HD), September 18, 1978
(78-132-MI-HD), March 1, 1979 (79-67-MI-HD), and September 12, 1979
(79-199-MI-HD), Eli Lipschultz, Regional Program Director, APS, OHDS,
notified the Michigan Department of Social Services (DSS) of
disallowances of $31,049 (78-67-MI-HD), $27,374 (78-132-MI-HD), $34,141
(79-67-MI-HD), and $9,605 (79-199-MI-HD) for the cost of equipment and
furnishings in excess of $300 per unit purchased under Title XX of the
Social Security Act for the quarters ended December 31, 1977 and March
31, 1978 (78-67-MI-HD), June 30, 1978 (78-132-MI-HD), September 30, 1978
(79-67-MI-HD), and March 31, 1979 (79-199-MI-HD). The DSS filed
applications for review on July 20, 1978 (78-67-MI-HD), October 6, 1978
(78-132-MI-HD), March 31, 1979 (79-67-MI-HD), and October 12, 1979
(79-199-MI-HD). Since there had not been requests for reconsideration
before March 6, 1978, the disallowances having been made after that
date, the appeals proceeded under 45 CFR Part 16 (1978).
An Order to Show Cause was issued on September 26, 1979 in 78-67-MI-HD,
78-132-MI-HD, and 79-67-MI-HP, and the responses to the Orders for
78-70-Ml-CS and 78-158-MI-CS were incorporated into the files for all
four cases, without objections from the parties.
Relevant Statutory and Regulatory Provisions
Section 2002(a)(1) of Title of the Social Security Act states:
From the sums appropriated therefor, the Secretary shall... pay to
each State, for each quarter...75 per centum of the total
expenditures during the quarter for the provision of other
services...including expenditures for administration...
'(Page 02 - 79 - 01/31/80)'
The general implementing regulations for the Title XX program can be
found at 45 CFR 201 et seq. (October 1, 1977). Section 205.160
addresses the treatment of non-expendable personal property.
45 CFR 205.160(a)(1) states that items of non-expendable personal
property costing less than $5000 per unit may be subject to FFP in full
at the option of the Title XX agency in the State. This is subject to
an exception in Section 205.160(a)(3) which concerns the treatment of
property acquired by organizational elements treated as indirect cost
centers or pools in an SRS cost allocation plan. In these situations,
non-expendable personal property costing over $300 must first be
capitalized and depreciated (or be subject to a use allowance). The
grantee receives FFP at a rate equal to 75% of the depreciation expense.
45 CFR 74.132 defines non-expendable personal property as:
"tangible personal property having a useful life of more than one
year and an acquisition cost of $300 or more per unit..."
45 CFR 201.5(e) states that 45 CFR Part 74, except for Subparts G
(Matching and Cost Sharing) and I (Financial Reporting), is applicable
to all Title XX grants.
Both the statutory and regulatory provisions relevant in these cases
enunciate the same basic principles as those provisions relevant in our
Decision Nos. 76, 77, and 78.
Issues Raised by the Parties
The arguments raised by the State are the same as those raised in
Decision Nos. 76, 77, and 78.
The Agency has argued that 45 CFR 205.160 expands and interprets Section
2002(a)(7) of the Social Security Act, which excludes reimbursement of
expenditures for the "purchase, construction, or major modification of
any land, building or other facility, or fixed equipment." The Agency
has contended that the statute is silent as to the manner and amount in
which payment can be made to states for capital expenditures, and that
the regulation fills in this gap. Although we do not find this argument
persuasive, we conclude, for the reasons stated in our earlier decisions
on this subject, that the regulation is valid.
In response to the State's argument that 45 CFR 205.160(a)(3)
contradicts Section 2002(a)(1) of the Social Security Act and is
therefore invalid, the Agency has argued that the Board lacks
"jurisdiction or authority to alter, amend, or revoke any formally
promulgated policies" of OHDS. A determination on this question is
unnecessary under the circumstances of
'(Page 03 - 79 - 01/31/80)'
these appeals since we conclude that 45 CFR 205.160(a)(3) is a
reasonable interpretation of the statute.
Conclusion
It is our opinion, for the reasons stated fully in Decision Nos. 76, 77,
and 78, that 45 CFR 205.160(a)(3) does not contradict the wording of
Section 2002(a)(1) of the Social Security Act and that the regulation
imposes a commonsense method for payment of the appropriate federal
share of costs for non-expendable personal property.
Accordingly, we deny the appeals and affirm the disallowances of
$31,049, $27,374, $34,141, and $9,605. This decision constitutes the
final administrative action on these matters. D11 June 5, 1992