Rules & Regulations of the State of Tennessee
Title 0420 - Correction
Subtitle 0420-02 - Division of County Programs
Chapter 0420-02-03 - County Correctional Incentives Program Participation and Fund Distribution Subsidy Grant Funds
Section 0420-02-03-.06 - REASONABLE ALLOWABLE COSTS

(1) The direct personnel cost of both full-time permanent employees and part-time employees will be considered a reasonable allowable cost as will personnel benefits, including insurance programs, retirement programs and other employer contribution plans which are provided by the county. A county, however, must submit its compensatory plan to the Judicial Cost Accountant so that the reasonableness of its staffing and compensation may be determined by the Commissioner of Correction. Unless a county can demonstrate that a greater portion of its sheriff's salary and benefits should be considered to be part of the county's correction expenses, fifty percent (50%) of the salary and benefits which are paid to a county's sheriff will be deemed to be part of the county's correction expenses. The State reserves the right to deem unallowable any direct personnel costs which are in excess of the State's compensation for similar positions or if the facility's staffing level appears excessive. The Commissioner of Correction shall notify the Judicial Cost Accountant if such an adjustment is deemed necessary.

(2) Expenditures for part-time or contract services (e.g., janitorial, laundry, legal, maintenance and repair, medical and dental, etc.) and consultants will also be considered reasonable allowable costs, except for medical costs incurred by the county outside of the correctional facility which will remain subject to reimbursement under other State procedures.

(3) Other direct costs for inmate care and treatment and facility maintenance and operation will be considered as part of a county's total reasonable allowable cost. The cost of land will not be included as part of a county's reasonable allowable cost, however, depreciation expense on fixed assets other than land may be included when computing reasonable allowable costs to the extent that such items were not part of any State or Federal grant provided the county for construction, renovation or equipment. Annual depreciation on buildings and major renovation shall be allowed at four percent (4%) of the original cost. Buildings and renovations will be considered fully depreciated twenty-five (25) years after construction. Depreciation will not be allowed after a building or renovation has been fully depreciated. Interest expense incurred in the financing of a building or renovation may be included in the cost basis for capital depreciation. The initial expense of acquiring equipment for a new facility, major renovation or addition may be included as part of the basis for calculating annual facility depreciation or may be expensed as regular equipment cost over a period of no less than three (3) years. Depreciation on renovations and other fixed assets shall be treated as a capital expenditure and recorded in a county's fixed asset group of accounts, provided that generally accepted accounting principles are followed. Fines and penalties are considered to be unallowable costs.

(4) In lieu of claiming depreciation expenses, a county may request, conditioned upon acceptance of the proposal by the commissioner, that the Department of Correction pay a percentage, corresponding to the percentage of the facility which will be available (whether or not actually utilized) to house such felons, of the actual cost of the debt service incurred by the county in constructing or renovating correctional facilities primarily dedicated to housing felons sentenced locally pursuant to T.C.A. § 40-35-104(b). Debt service payable as a reasonable allowable cost under this provision includes any required reimbursement to a debt service reserve fund established under debt instruments, as well as trustees' and rating agencies' fees. Not withstanding any other provision of these rules, the Department may pay debt service for the county in accordance with a debt service schedule as a reasonable allowable cost from the time the county incurs the debt service, regardless of whether, at the time, the facility being financed by the debt issue is actually housing felons sentenced pursuant to T.C.A. § 40-35-104(b), and regardless of whether the county has submitted verification, monthly reports or other information required under these rules.

(5) The normal indirect costs incurred by a county housing felony prisoners will be considered in determining a county's "reasonable allowable cost." Indirect costs are costs incurred for accounting functions, data processing, purchasing and similar services furnished by other county departments to support the correctional facility. A county may claim two percent (2%) of total direct cost in lieu of establishing an indirect cost allocation plan. If a county has an indirect cost allocation plan established in accordance with the U.S. Office of Management of the Budget's Circular A87, a copy of the plan may be submitted and the facility will be reimbursed for its total allowable indirect costs as reflected in the OMB Circular A87. Duplication of the same cost item as both a direct and an indirect cost, however, will not be allowed.

(6) Revenues and income received by a county correctional facility for housing inmates on behalf of another governmental entity will serve to proportionately reduce the amount paid to a county for housing felony inmates for the State, excluding any amounts set forth in a debt service schedule pursuant to subsection (4). All revenues and income received by a county correctional facility for housing inmates on behalf of another governmental entity must be identified as to source and reported to the Judicial Cost Accountant; the total inmate days for which a county is reimbursed for housing inmates on behalf of another governmental entity must be deducted from total facility population, however.

(7) Medical costs for State prisoners which are incurred as emergency hospitalization expenses shall not be included in determining daily cost but must be reimbursed under the provisions of T.C.A. §414115(b). Any other related expense, such as the cost of guarding a state prisoner during emergency hospitalization, will be considered an allowable cost and should be included when determining the daily inmate cost. Any reimbursement received for such costs must also be included as an offsetting revenue.