Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Southbay
Community DATE: August 17, 1993
Development
Corp.
Docket No. A-93-58
Decision No. 1432
DECISION
The Southbay Community Development Corporation (Southbay) appealed
a
determination by the Office of Community Services (OCS) of
the
Administration for Children and Families denying Southbay's request
for
a no-cost extension of its economic development grant and
requiring
Southbay to sell land which it acquired with grant funds and to
return
all grant funds (totalling $500,000). The one-year grant to
Southbay
was made on July 31, 1989 under the Community Services Block Grant
Act
of 1981 (CSBG), 42 U.S.C. . 9910(a)(2), in response to an application
in
which Southbay proposed to use the funds for construction of
an
industrial building which would provide projected
employment
opportunities for low-income people. When construction had
not begun
after two extensions, Southbay sought an additional no-cost
extension
through September 30, 1993. That request was denied on
December 10,
1992, and OCS instructed Southbay to sell the land it had
acquired and
return all grant funds to the agency.
Based on the analysis below, we find the denial of the additional
no-cost
extension to be reasonable and we sustain OCS's determination in
that
regard. We further conclude that Southbay must follow the
directions of
OCS in disposing of the real estate and return to OCS the
federal share of
any proceeds, since the property is not being and has
never been used for the
purposes of the grant. In addition, we conclude
that Southbay must
return the entire amount of the grant (even if the
proceeds from the sale of
the land fall short of that total), because it
has accomplished none of the
grant objectives and has provided no
documentation whatsoever of its
expenditures.
Background
The CSBG authorizes competitive grants to certain kinds of
nonprofit
community groups to sponsor "enterprises providing employment
and
business development opportunities for low-income residents of
the
community designed to increase business and employment opportunities
in
the community." 42 U.S.C. . 9910(a)(2)(A). Under that
authority, OCS
issued an announcement on July 8, 1988 of the availability
of
discretionary funds for, among other priorities, urban and
rural
community development, in order to "encourage the creation of
projects
intended to provide employment and business development
opportunities
and generally improve the quality of the economic and social
environment
of low-income residents . . . ." 53 Fed. Reg. 25,752 (July
8, 1988).
The projects were generally to be for one year, with longer periods
up
to two years possible, if justified by the applicant. Id. at
25,754.
The announcement specified that, "[w]hile projected employment in
future
years may be included in the application, it is essential that the
focus
of employment projections concentrate on those jobs saved or
created
during the duration of the OCS grant period." Id. at
25,753.
Southbay filed an application in response to this announcement
proposing
to develop a 35,000 square foot industrial building on a two-acre
site
in San Ysidro, California. Southbay Exhibit (Ex.) IV, at 13,
19. The
application sought $500,000 in funding, which it asserted would
cover
27% of the costs of construction which was to begin within three
months
of the award and be completed eight months later. Id. at 15, 18,
27.
The expected benefits included 50 construction jobs and 105
permanent
jobs. Id. at 13, 18. Southbay asserted that ready
demand existed for
rental of the space by small minority-owned
businesses. Id. at 21.
Such demand was critical because the "key test
of feasibility . . . is
the ability to secure desirable tenants." Id.
at 14. The application
stated that "[n]o other public funds will be
requested after this
period, and the project will be financially feasible and
will reach a
breakeven point within its first year of operation." Id.
at 17.
On July 31, 1989, OCS notified Southbay that it would provide the
full
amount of requested funding for a project period from July 1,
1989
through June 30, 1990. Southbay Ex. IV, Attachment (Att.) 1.
The
Notice of Grant Award states that the grant is subject to
administrative
regulations at 45 C.F.R. Part 74, as well as grant program
regulations.
Id.
It is clear from the record before us that from the beginning matters
did
not proceed as Southbay had anticipated in its application. The
first
progress report submitted by Southbay spelled out four goals and
eight
specific objectives for the project, 1/ but noted that during the
first six
months of the grant period the only progress made was in
negotiations to buy
land, which had proved more difficult than
anticipated due to "the long delay
in announcing the grant award
(approximately 11 months after proposal
submission)." OCS Ex. B at 3.
2/ Southbay reported that it signed
a purchase contract on February 13,
1990 for an industrial site on which it
still planned to build a 35,000
square foot building. Construction was
now projected to begin in
September 1990, six months after the acquisition
was expected to be
completed and some three months after the end of the grant
period.
Consequently, Southbay indicated that it would request a
no-cost
extension.
A May 30, 1990 site visit by OCS staff and subsequent
correspondence
raised additional concerns. See generally OCS Exs. C, D,
E, and F. The
project developer working with Southbay had gone
bankrupt, and a new
organization had agreed to replace him as partner.
The anticipated
sources of construction financing and potential tenants were
in doubt.
Nevertheless, on November 20, 1990, OCS approved a no-cost
extension for
fifteen months through September 30, 1991 and permitted
Southbay to
reassign the grant funds from construction costs to acquisition
costs.
Southbay Ex. IV, Att. 2.
OCS also notified Southbay by letter dated January 31, 1991 that it
must
file a Notice of Record with the recorder of deeds to protect
the
federal reversionary interest in any real property acquired. OCS
Ex. L.
Southbay informed OCS that as of May 20, 1991 it still had not
obtained
title to the land, but confirmed that it would file the required
notice
once the sale closed. OCS Ex. G. This sale eventually fell
through.
Southbay then identified an alternative site and completed its
purchase
in August 1991 and reported that it had expended all federal
funds,
apparently (although this was not clearly documented) on the
land
acquisition. Southbay Exs. II and III; OCS Ex. H. Southbay
requested
an additional nine-month extension and provided a new timetable
under
which construction would begin October 1, 1991 and finish on
February
29, 1992. Southbay Ex. II, Schedule III.
OCS denied the additional no-cost extension, since Southbay stated
that
all federal funds had already been obligated, but permitted an
extension
for filing the final progress report until September 30,
1992. Southbay
Ex. III. Nevertheless, OCS required a final audit
report be submitted
by May 20, 1992. Id. No audit was ever
submitted, despite repeated
warnings from OCS.
A week before the final progress report was due, Southbay requested
a
further no-cost extension through September 30, 1993. Southbay Ex.
II,
at 8. No progress had been made on any of the project objectives
other
than the acquisition of the land. Southbay largely attributed
this
failure to the change in the real estate market from "a growth to
a
depression market." Id. As a result, Southbay was unable to
locate a
tenant despite the involvement of a broker and the entire Board
of
Directors in marketing the project "aggressively and at a
very
attractive lease rate." Id. Nevertheless, Southbay
expressed
confidence that it would "meet or exceed all goals as outlined" in
the
application. Id. at 9. A new timetable was attached,
indicating the
start of construction projected for March 1, 1993.
OCS concluded that no further extension was justified in light of
the
prolonged delays in the project and Southbay's inability to find
viable
tenants, and the expectation that no construction would even begin
(and
hence no low-income jobs be created) until at least March 1,
1993.
Consequently, OCS directed that Southbay "sell the land purchased
with
grant funds and return all of the grant funds" as soon as
possible. OCS
determination at 2 (Dec. 10, 1992).
In these actions, OCS asserted that it was exercising its discretion
under
the Department of Health and Human Services Grants Administration
Manual
(HHS-GAM), which permits grants officers to extend a project
period "for a
limited time, usually a few months, to provide for an
orderly phase-out of
Federal support." HHS-GAM . 1-85-80. OCS also
relied on
administrative regulations (referenced in the Notice of Grant
Award) which
state that when a grantee has "materially failed to comply
with terms" of a
grant, OCS may take "such remedies as may be legally
available and
appropriate in the circumstances." 45 C.F.R. . 74.113(a);
Southbay Ex.
IV, Attachment (Att.) 1.
Southbay argued that OCS' determination was wrong for the
following
reasons --
The denial of the extension was arbitrary and capricious,
and
was the cause rather than the result of Southbay's failure
to
complete the project objectives.
The one-year project period was unrealistic from the
beginning
and was a "political decision."
The difficulty in performing the project objectives was
caused
by OCS' delay in making the award for 11 months after
submission
of the application, resulting in less favorable
market
conditions.
The land is subject to a first mortgage loan of $354,220 and
has
a market value below that amount, so that OCS would
recover
nothing in a forced sale.
If Southbay is required to return the grant funds, they
will
revert to the general Treasury funds, rather than returning
to
OCS's discretionary grant program, thus thwarting
Congress'
intent to appropriate this funding for specific purposes with
no
statutory time limit on grant performance.
Southbay Brief (Br.) at 1-2.
We consider each of these arguments below and find them without merit.
Analysis
1. The denial of Southbay's request for an additional no-cost
extension
was not arbitrary.
We have consistently stated in prior decisions raising this issue that
we
will uphold OCS's decision to deny a no-cost extension unless we find
that
the decision was arbitrary. 3/ We thus consider only whether the
denial
was a reasonable decision, not whether it was the best or only
possible
decision. Among the factors the Board has considered in
weighing
whether OCS denial of a no-cost extension was arbitrary are (1)
the grantee's
substantial failure to complete the project for which
funds were awarded, and
(2) absence of documentation of the grantee's
expenditure of federal funds on
allowable costs incurred for project
purposes. Ironbound, DAB No. 1302,
at 6 and 11. 4/ Both of these
factors are present in this case.
Regarding the failure to complete the project, the OCS Announcement
and
Southbay's application make clear that the essential goal of this
grant
was jobs for low-income people. See, e.g., 53 Fed. Reg. at
25,753;
Southbay Ex. IV, at cover letter, and 12-13. It is uncontested
that not
a single job has been created or preserved as a result of this
project.
The proposal was for the construction of an industrial building and
its
rental to tenants beneficial to the community. It is uncontested
that
nothing has been built or rented. The application proposed
a
self-evaluation process that would measure specific details in
four
categories: job creation, ownership opportunities,
physical/economic
assets (square footage and tenant improvements), and
improved economic
base. Southbay Ex. IV, at 15-16. By these
measures, virtually nothing
has been achieved, since a site has been acquired
but no construction,
improvements, business ownership or operations, or job
creation has
occurred. The land acquisition itself was really a
prerequisite rather
than a goal of the project.
Regarding documentation, Southbay provided no documentation whatsoever
of
its use of funds, so it is impossible to verify the expenditure of
federal or
non-federal funds on allowable grant-related costs. Despite
repeated
instructions from OCS, Southbay never submitted an audit to
substantiate its
costs. Despite its opportunities to present its case
before us,
Southbay did not provide any record of how its funds were
spent, beyond its
own assertions (which were often unclear). 5/ While
the purchase of
land for industrial development was one of the
prerequisites for
accomplishing the grant objectives, the land had to be
used within the
project period for specific purposes. Simply buying and
holding land,
for speculation, investment, or other purposes, does not
serve the objectives
for which the grant was made, i.e., job creation
and economic
development. Southbay did not demonstrate that the land it
purchased
was ever used for purposes of the project for which it
received federal
funding. It was therefore reasonable for OCS to
conclude that Southbay
should not be allowed additional time in which to
undertake such use, since
Southbay had had (at the time of OCS's
determination) more than three years
since its grant award, more than
two years since it was granted a first
extension, more than a year since
the land was acquired, and seven months
since it was supposed to submit
a final audit, to do so. The Notice of Grant
Award notified Southbay of
the precise project period. Southbay could
not reasonably anticipate an
indefinite time in which to await favorable
conditions in order to
complete its grant activities.
Clearly, the one-year additional extension requested by Southbay does
not
constitute a limited time period for purposes of an orderly
phase-out (as
contemplated by the HHS-GAM), when construction is not
even expected to begin
under the latest timetable until March 1993 (five
months after the start of
the requested extension period) and is
expected to take six months.
Grant activities would not be winding
down, but rather finally starting
up. Furthermore, an extension could
not be for the purposes of phasing
out federal support, since the only
federal funds intended for this project
were already spent, according to
Southbay, by August 1991.
Southbay contended that its failure to perform is due to OCS's refusal
of
the requested extension, but provided no realistic basis for
concluding that
successful performance was any more certain to occur
under its new timetable
than under the various previous schedules which
it abandoned. OCS
already granted one extension of the project period
without any substantial
results being achieved by Southbay beyond
concluding a land purchase months
after a different purchase was said to
be on the verge of settlement.
Southbay treated the time allowed for
filing its final report as another
extension. Yet, no progress was made
during that period either on any
of the project objectives. The
application made clear that the ability
to attract beneficial tenants
was "key" to meeting the objectives of the
project. Yet Southbay's
submissions evidence no reasonable prospect of
attracting such tenants
even if yet another extension were granted.
See, e.g., Southbay Ex. II,
at 8-9. While Southbay provided a newspaper
article suggesting that
industrial leasing in the area had significantly
increased in early
1993, it offered no concrete evidence of commitments from
specific
tenants. See Southbay Br., Attachment 2. 6/ This
contrasts sharply
with the letters of intent from prospective tenants
attached to
Southbay's original application. Southbay Ex. IV, at
22-26. We
conclude that Southbay had already materially failed to
perform under
the terms of its grant before its latest extension request and
did not
demonstrate that that failure would be remedied even with the
additional
time. Contrary to Southbay's assertions, its nonperformance
was the
cause, not the result, of OCS's denial of another extension.
Under these circumstances, we find nothing arbitrary in
OCS's
determination to deny an additional no-cost extension.
2. Southbay's assertion that the one-year grant period was
unrealistic
is unavailing.
Southbay argued that the one-year grant period was "a political
decision,"
based on annual conflicts between the White House and
Congress over
appropriations for the program. 7/ As a result, according
to Southbay,
the grant program--
was based on a false premise that the grants awarded, in
some
cases for extremely complex development projects which
would
take five or six years to complete in the private sector,
could
be completed in one year. This was simply unrealistic and
the
no-cost extension was used to mitigate the damage. The
current
policy is a 36 month grant period for projects
involving
construction. This is more realistic but still not
adequate.
If this grant was originally for a 36 month grant period,
the
grant would have expired 6/30/92 and a 15 month
no-cost
extension and 12 month close-out period (which were
approved)
would have taken the grant to September 30, 1994.
Southbay Br. at 2.
If the one-year period was unrealistic from the outset, the
responsibility
lies with Southbay for misleading OCS about its projected
time frames and its
ability to perform the project as described in the
application. The
discretionary grant which Southbay received was
awarded competitively.
Other applicants may not have received funding
for their proposals because
OCS relied on the representations which
Southbay made in its
application. Southbay's complaint about its
initial project period
being unrealistically brief is especially dubious
in light of Southbay's
choice to request only a one-year project period
in its application even
though OCS' notice made clear that longer
periods were possible if requested
and justified.
It is certainly no excuse for failure to complete the objectives of
a
one-year grant within 36 months to argue that those objectives might
be
in sight if the initial grant had been for 36 months and the
same
extensions were obtained. In any case, even if the grant terms
were not
feasible either initially or in light of the changing economy, the
only
remedy at this point would be for Southbay to return the grant
funds,
not for it to simply sit on the land indefinitely, if it cannot
perform
its obligations under the Notice of Grant Award. See Mexican
American
Unity Council, DAB No. 1341, at 14 (holding that where a
grantee
concludes that intended construction is not economically wise, it
must
return funds not spent for grant purposes).
We therefore conclude that the claimed inadequacy of the initial
project
period does not make the denial of an additional no-cost
extension
unreasonable.
3. The time lapse between the application and the award does
not
justify Southbay's non-performance.
Southbay also attributed its inability to carry out the grant
objectives,
and in particular the unanticipated difficulty in obtaining
tenants, to a
downturn in the local commercial/industrial real estate
market that occurred
during the "very long delay" between the submission
of the application and
the award of the grant. Southbay Br. at 2.
Southbay asserted that the
market is now recovering and therefore "it
would be irresponsible to sell the
land and kill the project now." Id.
The lapse of time (about 11 months) between the submission of
the
application and the approval of the grant does not shift
the
responsibility for the feasibility of the project from Southbay to
OCS.
If changed circumstances meant that Southbay could no longer perform
as
it represented in its application, Southbay was under no obligation
to
accept the grant and undertake the attendant responsibilities.
Southbay
could have declined the grant or communicated its concerns to OCS
and
sought a change in the grant terms based on the new
conditions.
Instead, Southbay accepted the grant under the
originally-proposed
terms, and did not demonstrate that it made any effort to
inform OCS of
any material change in its plans or prospects until the project
period
was drawing to a close.
Moreover, we cannot agree with Southbay's claim that the sale of the
land
and termination of the grant now would be "irresponsible," in light
of
reviving hopes for finding a tenant in a better market. On
the
contrary, OCS could reasonably conclude that it would be
irresponsible
to once again rely on Southbay's representations about its
capacity to
complete construction and find tenants, in view of OCS's
experience that
Southbay's timetables and projections repeatedly proved
over-optimistic
at best.
We therefore conclude that the amount of time that elapsed between
the
application and the award does not make the denial of an
additional
no-cost extension unreasonable.
4. OCS is entitled to recover the federal share of the proceeds of
the
sale of land purchased with grant funds.
All real property "acquired with grant support" is subject to use
and
disposition requirements under 45 C.F.R. Subpart O. 45 C.F.R.
.
74.130(a). Such property must be "used for the originally
authorized
purpose as long as needed for that purpose," and, once the
property is
no longer so used, then agency approval must be sought for any
other
use. 45 C.F.R. . 74.134(a). Absent such approval, "the
disposition
instructions of the granting agency shall be followed." 45
C.F.R.
.74.134(c). Three alternative procedures are provided, all of
which are
calculated to result in the federal government receiving a share of
the
value of the property proportionate to the federal share of the cost
of
the property. See 45 C.F.R. .. 74.134(c) and 74.142. Since the
grant
period has expired and the grant purposes are not being carried out,
the
land at issue here is not needed for its originally authorized
purposes.
Thus, OCS did not exceed its authority under those regulations
in
instructing Southbay to dispose of the property and remit the
federal
share of the proceeds. Any argument that the land is needed or
could
still be used to effectuate the original purposes is without merit
in
light of the material failure of Southbay to comply with the terms
of
its grant, as described in detail above. See also 45 C.F.R. .
74.113(a)
(providing that, in such circumstances, the granting agency may
take any
"legally available and appropriate" remedies).
Moreover, the requirement to dispose of the land and return the
federal
share is not inconsistent with Southbay's duty to return all
federal
funds for which it cannot provide documentation of
allowable
expenditures to advance program purposes. The closeout of a
grant does
not affect the responsibility of a grantee in handling the
proceeds of a
sale of land purchased (in whole or part) with federal
funds. 45 C.F.R.
. 74.111(c)(3). In other words, in closing out
its grant, Southbay is
required to return to the federal government all funds
received by it in
excess of those to which it is determined to be entitled
under the grant
terms. 45 C.F.R. . 74.112(a). In light of its
material failure to
comply with the terms of the grant or to perform any of
the activities
which it promised to undertake to complete the goals and
objectives, OCS
acted appropriately in determining that all grant funds must
be
returned. In addition, since it is not now using property which
it
purchased with federal funds for the intended purposes, Southbay
must
follow OCS's instructions in disposing of the property and return
the
federal share of any proceeds. To the extent the proceeds represent
a
return of the federal investment, those funds constitute a portion
of
the grant funds required to be returned as part of the closeout. To
the
extent the federal share of the land proceeds exceeds the
federal
investment, the additional amount would constitute income on
the
investment to which the federal government would be entitled under
45
C.F.R. .. 74.43, 74.112(b), and 74.134, but would not substitute
for
return of any other grant funds not included in the land purchase
and
not used for allowable expenditures. To the extent the federal
share of
the land proceeds falls short of the federal funds invested in the
land
purchase, Southbay continues to be obligated to return the entire
amount
of federal funds which it received. In the absence of any
documentation
about the federal share, it is reasonable to presume that the
federal
government is entitled to the full proceeds of the sale of the land
in
light of Southbay's representation about its purchase with
federal
funds. See supra at fn. 4. OCS may permit Southbay a
further
opportunity to provide documentation, if Southbay asserts that
the
federal share is less than 100%.
Southbay argued that a first mortgage which it had placed on the
land
would have the effect of exhausting the proceeds of any sale of
the
land. OCS pointed out that Southbay had been instructed and had
agreed
to file notice of the prior right of the federal government, so that
the
mortgage would be subordinate to that claim if the notice was
properly
filed. OCS cited case law for the proposition that the
federal
government has a reversionary interest in real property acquired
with
grant funds no longer being used for specific grant purposes.
See,
e.g., Henry v. First Nat'l Bank of Clarksdale, 595 F.2d 291, 308-9
(5th
Cir. 1979), reh. denied, 601 F.2d 586 (5th Cir. 1979), cert. denied
sub.
nom. Claiborne Hardware Co. v. Henry, 444 U.S. 1074 (1980).
The
question of whether the federal government will successfully assert
its
claim to the proceeds against the mortgagor is beyond the scope of
this
proceeding, however. Our conclusion is simply that Southbay must
follow
OCS' instructions in disposing of the land and must return the
total
amount of grant funds received.
5. The disposition of returned funds within the federal government
is
not relevant to Southbay's obligation to return grant funds.
Southbay also contended that returning its grant funds to the
general
Treasury would defeat Congress' purpose in appropriating the funds
for
OCS's grant programs. An essential requirement of grants
administration
is that a grantee is only entitled to grant funds covering
allowable
reimbursable costs and must refund upon closeout of the grant any
funds
paid out to which the grantee was not entitled under terms of the
grant.
45 C.F.R. .. 74.111(b)(1) and 74.112(a). Such excess funds
become a
debt to the federal government. 45 C.F.R. . 74.112. It
is simply
irrelevant to our determination here that such a debt exists to
inquire
into how the funds to be returned by Southbay might be disbursed by
the
federal government thereafter. The disposition of funds returned to
the
federal Treasury is governed by statute and regulation and can
be
presumed to be in accord with congressional purposes.
Furthermore, throughout the period in which Southbay has retained the
use
of federal funds or property purchased with federal funds, yet has
not
employed them for the purposes contemplated in the grant, those
funds have
been rendered unavailable to meet the needs for which they
were
appropriated. Thus, if anything stymied Congress' intent for the
use of
these funds, it was Southbay's acceptance of the funds for
purposes it now
asserts were always unrealistic and its inability or
unwillingness to either
comply with the grant terms or return the funds.
We thus find Southbay's
argument on this point without merit.
Conclusion
For the reasons discussed above, we uphold OCS's exercise of discretion
in
denying a no-cost extension. We further uphold OCS's instruction
that
Southbay sell the land acquired with grant funds and return the
federal share
of the proceeds, as well as the balance of the grant funds
received by
Southbay, if any, in light of its material failure to comply
with grant
terms.
___________________________
Cecilia
Sparks Ford
___________________________
Norval
D. (John) Settle
___________________________
M.
Terry Johnson
Presiding Board Member
1. The goals were (1) to "generate new permanent private
sector
employment opportunities for the unemployed and underemployed
residents
of the community;" (2) to "diversify and expand the local
economic
base;" (3) to "stabilize the local economy and to improve
residents'
quality of life;" and (4) to "strengthen and maintain private
sector
partnerships." The objectives were listed as follows:
1. To improve and develop land suitable for industrial use.
2.
To generate 105 employment opportunities for the residents
of
the community. 3. To place a minimum of one-half of the
new
employment opportunities with . . . [low-income] persons. 4.
To
reduce dependency on public assistance and other
transfer
payments. 5. To recruit new firms and start-up
businesses for
location in the Industrial Project and to provide new
employment
and income opportunities. 6. Generate in excess
of $1,300,000
in gross annual income. 7. To increase the
tax base of the
community. 8. To benefit the tax stream to
the city, county,
state and federal government by more than $400,000 on
an annual
basis.
OCS Ex. B at 2-3.
2. In that report, Southbay pointed out that the grant period
was
shown as beginning on July 1, 1989 even though the award was not
made
until July 31, 1989, and characterized this as an error. OCS Ex.
B. at
2. OCS did not respond to this comment before us, and it is
not
necessary to resolve the matter in order to decide any issue before
us.
3. In a footnote, OCS suggested that the Board had correctly
decided
in one case that it did not have jurisdiction to review denials
of
no-cost extensions. However, OCS did not offer any arguments that
Board
review was not available in this case, recognized that such denials
had
been reviewed in other Board cases, and cited the standards applied
in
those cases as relevant here. OCS Brief Br. at 11-12, n.2. In
Mexican
American Unity Council, DAB No. 1341 (1992), no-cost extensions of
the
grantee's award were denied twice for reasons that did not
appear
arbitrary. No such denial was actually before the Board, since
the
issues there dealt only with the federal share in the proceeds of
the
sale of a building acquired in part with grant funds. The
passing
reference to Board jurisdiction in a footnote in that case was
therefore
simply dicta. DAB No. 1341, at 14, n.12. In cases like
the present
one, review of the denial of a no-cost extension is generally
a
necessary concomitant to review of a disallowance or requirement
to
return funds. See 45 C.F.R. Part 16, Appendix A, .
C(a)(1).
Consequently, the Board has long asserted jurisdiction to review
"OCS's
exercise of discretion to withhold an extension." Ironbound
Educational
and Cultural Center, Inc., DAB 1302, at 6 (1992), citing Oakwood
Child
Development Center, Inc., DAB No. 1092 (1989); see also
Bedford
Stuyvesant Restoration Corp., DAB No. 1404, at 7-8 (1993), and
cases
cited therein (explaining applicability of "arbitrary or
capricious"
standard).
4. Southbay argued that OCS's denial was arbitrary because the
only
basis articulated for it was that all grant and matching funds
had
already been expended. However, that point was made in OCS's letter
of
April 30, 1992, which denied a no-cost extension for that reason
but
permitted additional time to complete progress reports. That
decision
was not appealed. The decision on appeal before us was issued
on
December 10, 1992 in response to Southbay's request for an
additional
no-cost extension by letters dated September 24 and 25,
1992. The
reasons articulated for the denial of the no-cost extension
on appeal
before us were that (1) "a one-year grant period [cannot be
allowed] to
be extended indefinitely," (2) the "only substantive progress
that has
been made on this project since its inception is acquisition of
the
land," (3) construction is not even scheduled to begin for six
more
months, and (4) the submissions from Southbay make the prospects
of
signing viable tenants with even another year's extension
unpromising.
OCS Determination at 1. As discussed further in the text,
we find that
these reasons were adequate and were supported on the
record.
5. For example, in a letter to OCS dated September 17, 1991,
Southbay
reported closing on its land purchase in August 1991. Southbay
Ex. II,
at 1. In attachments to that letter Southbay showed a total
land price
of $490,000 derived entirely from OCS's funds, as well as an
expenditure
of $10,000 of OCS's funds for permits and fees. Id. at 4
and 6. Bank
funds were shown as covering $901,259 in building shell
costs, as well
as other miscellaneous items (architects, fees, and
commissions) for a
total of $1,098,259. Id. at 6. No construction
had begun, and no lien
against the land was mentioned. Yet Southbay
asserted to the Board that
the "land was purchased and was subject to a first
mortgage loan," with
an outstanding balance of $354,220. Southbay Br.
at 1. Southbay did
not explain the inconsistency.
6. After receiving two extensions of time in which to file its
reply
brief in this case, Southbay asserted that it had just identified
a
"potential tenant" and requested a third extension of time in order
to
begin negotiations. The additional time was denied, since Southbay
had
already been granted more than 50 days in which to file a brief
normally
due within 15 days. In its reply brief, Southbay indicated
that the
potential tenant might be able to occupy 20,000-35,000 square feet
of
the building by April 1994, if construction was completed and
if
agreeable lease terms were negotiated. No supporting documentation
was
provided to demonstrate the ability or commitment of this
potential
tenant to lease the planned building. In short, the possible
tenant is
extremely speculative. Furthermore, the grant in this case
expired in
September 1991, so it is far too late to begin negotiations
with
possible tenants for a building on which no construction has
even
occurred. We also note that the April 1994 date is entirely new
and
unconnected to any prior timetable provided by Southbay. We
therefore
do not find that the claim that a potential tenant has been
identified
adds in any way to the likelihood that anything substantial would
be
accomplished relating to the grant objectives even if the denial of
the
no-cost extension were overturned.
7. In its reply brief, Southbay elaborated on this argument
further to
assert that OCS had recognized the necessity for additional time
in such
cases by having "adopted a congressionally-supported practice or rule
of
granting such extensions." Southbay Reply Br. at 3. Southbay
did not
demonstrate that any such rule had ever been adopted, cited to
no
written policy or oral representation embodying such a rule, and gave
no
basis for its claim of congressional support for this purported
practice
or rule other than the continued appropriation of funds for
OCS
discretionary grant programs. While Southbay referred to
a
"widely-recognized" OCS practice of granting extensions, which led it
to
expect a favorable response, it offered no example other than the
first
extension which it received. Id. That OCS allowed Southbay
one
extension in which to fulfill its grant objectives does not
demonstrate
a "standard practice" of granting repeated extensions in the face
of
continued failure to