Current through all regulations passed and filed through September 16, 2024
(A) The county family service agency (CFSA)
and the Workforce Innovation and Opportunity Act (WIOA) local area shall follow
federal, state, and local regulations when seeking federal financial
participation (FFP) for the costs associated with the rental or lease of
property and/or equipment. The costs must be necessary and reasonable for
proper and efficient performance and administration of the award and must be in
compliance with 2 C.F.R. part 200 and generally accepted accounting principles
(GAAP).
(B) Definitions
(1) "Amortization" means the method for
allocating the cost of "right-to-use" of an asset to periods benefitting from
asset use over the lesser of the lease term or economic life.
(2) "Depreciation" means the method for
allocating the cost of assets/equipment to periods benefitting from asset
use.
(3) "Equipment" means tangible
personal property (including information technology systems) having a useful
life of more than one year and a per-unit acquisition cost which equals or
exceeds the lesser of the capitalization level established by the non-federal
entity for financial statement purposes, or five thousand dollars.
(4) "Expensing" means the method for
allocating costs claimed as a direct or indirect cost and expensed during the
accounting period.
(5) "Lease"
means a contract that conveys control of the right to use another entity's
nonfinancial asset (the underlying asset) as specified in the contract for a
period of time in an exchange or exchange-like transaction.
(6) "Lease liability" means principal or
lease payment minus interest, maintenance fees, taxes, insurance, and other
fees.
(7) "Lease term" means the
period during which a lessee has a noncancelable right to use an underlying
asset and also includes extension periods regardless of the probability of the
extension period being exercised.
(8) "Nonfinancial asset" means the underlying
asset in this rule specifically the control of the right to use the underlying
assets not limited to capital assets such as buildings, land, vehicles and
equipment. However, the definition of nonfinancial assets does exclude the
following: financial assets, intangible assets (other than intangible
right-to-use assets), assets financed by conduit debt, biological assets,
inventory, supply contracts, service concession arrangements, and licensing
contracts for computer software.
(9) "Supplies" mean all tangible personal
property other than those described in the definition of equipment. A computing
device is a supply if the acquisition cost is less than the lesser of the
capitalization level established by the non-federal entity for financial
statement purposes or five thousand dollars, regardless of the length of its
useful life.
(C) In
determining reasonability, the CFSA or WIOA local area shall research
rental/lease costs of property and/or equipment to ensure costs are allowable
to the extent that the rates are reasonable and consideration is given to each
of the following factors:
(1) Available
alternatives;
(2) Comparable
property, if available;
(3) Area
market conditions; and
(4) The
type, useful life, condition, and value of the property being leased.
CFSA and WIOA local area shall review rental/lease agreements
periodically to determine if circumstances have changed and other options are
available.
(D)
Specific requirements for special lease/rental contract types
(1) Sale and leaseback contracts.
A sale and leaseback contract is one under which one party
sells property to a buyer and the buyer immediately leases the property back to
the seller. While it is acknowledged that an increase in rental costs may
result from a change in ownership, the allowable claim to federal programs
cannot exceed the amount allowable prior to the sale and leaseback arrangement.
Rental/lease costs are allowable only up to the amount that would be allowed
had the non-federal entity continued to own the property. Examples of the types
of costs included in the calculation of allowable costs are provided in
paragraphs (F)(1) and (F)(3) to (F)(6) of this rule.
(2) Less-than-arm's-length lease contracts.
For this purpose, a less-than-arm's-length lease is one in
which one party to the lease agreement is able to control or substantially
influence the actions of the other. Rental/lease costs are allowable only up to
the amount that would be allowed if the non-federal entity owned the property.
Examples of the types of costs included in the calculation of allowable costs
are provided in paragraphs (F)(1) and (F)(3) to (F)(6) of this rule. Such
leases include, but are not limited to, those between the following
entities:
(a) Divisions of the
non-federal entity;
(b) The
non-federal entity under common control through common officers, directors, or
members, as in a lease between a county agency and a board of county
commissioners; and
(c) The
non-federal entity and a director, trustee, officer, or key personnel of the
non-federal entity or his/her immediate family as defined in
2 C.F.R.
200.465, either directly or through
corporations, trusts, or similar arrangements in which they hold a controlling
interest.
(d) Lease contracts
between the entities described in paragraph (D)(2)(b) of this rule do not meet
the definition of a lease under governmental accounting standards board (GASB)
87.
(E) All
other types of lease contracts and cost reimbursement.
(1) "Governmental
Accounting Standards Board (GASB) Statement 87" will be used to categorize
existing and new leases for local fiscal years beginning after June 15, 2021;
however, early implementation is permissible.
(a) Short-term leases - defined in GASB 87
"as a lease that, at the commencement of the lease term, has a maximum possible
term under the lease contract of twelve months (or less), including any options
to extend, regardless of their probability of being exercised." Cost
reimbursement under short-term leases for costs identified in paragraphs (F)(2)
to (F)(6) of this rule are claimed via expensing
(b) Contracts that transfer ownership as
defined in GASB 87 "as a contract that transfers ownership of the underlying
asset to the lessee by the end of the contract and does not contain termination
options, but that may contain a fiscal funding or cancellation clause that is
not reasonably certain of being exercised."
(i) When an underlying asset is equal to or
greater than the lesser of either the local capitalization threshold or the
federal/state capitalization threshold of five thousand dollars, cost
reimbursement is accounted for as follows: principal costs under contracts that
transfer ownership are claimed via depreciation over the useful life of the
asset and all other costs identified in paragraphs (F)(3) to (F)(6) of this
rule are claimed via expensing.
(ii) When an underlying asset is less than
the lesser of either the local capitalization threshold or the federal/state
capitalization threshold of five thousand dollars, cost reimbursement for costs
identified in paragraphs (F)(2) to (F)(6) of this rule are claimed via
expensing.
(c) Leases
that do not transfer ownership as defined in GASB 87 "as a lease other than
short-term leases and contracts that transfer ownership as defined in
paragraphs (E)(2)(a) and (E)(2)(b) of this rule.
(i) Cost reimbursement under leases that do
not transfer ownership is accounted for as follows: Lease liability costs are
claimed via amortization over the lesser of the lease term or the useful life
of the asset; and
(ii) All other
costs identified in paragraphs (F)(3) to (F)(6) of this rule are claimed via
expensing.
(2) Rental/lease costs
are allowable only up to the amount that would be allowed had the CFSA and WIOA
local area purchased the property on the date the lease agreement was executed.
Examples of the types of costs included in the calculation of allowable costs
are provided in paragraph
(F) of this rule.
(F) Calculation of allowable rental/lease
costs under the special lease/rental types in this paragraph include expenses
such as:
(1) Depreciation or amortization as
defined in paragraph (B)(1) of this rule applicable for claiming the principal
or lease liability under contracts that transfer ownership and leases that do
not transfer ownership;
(2)
Operating costs - rent; can also include costs as listed in paragraphs (F)(3)
to (F)(6) of this rule;
(3)
Interest as outlined in 2
C.F.R. 200.449;
(4) Maintenance costs of keeping the property
in efficient operating condition. These costs are not allowable if included in
the rental agreement or result in an increase in the property's permanent
value;
(5) Taxes; and
(6) Insurance.
(G) Unallowable costs
(1) The rental of any property owned by any
individuals or entities affiliated with the non-federal entity, including
commercial or residential real estate, for purposes such as the home office
workspace is unallowable.
(2)
Contracts that transfer ownership must exclude amounts paid for profit,
management fees, and taxes that would not have been incurred had the
non-federal entity purchased the property per
2 C.F.R.
200.465(d).
