DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: New Mexico State Agency on Aging
Docket No. 86-55
Decision No. 790
DATE: September 22, 1986
DECISION
The New Mexico State Agency on Aging (State) appealed a determination
by
the Office of Human Development Services (OHDS) to disallow $133,970
in
funds awarded to the State for fiscal year (FY) 1984 under Title III
of
the Older Americans Act of 1965 as amended, 42 U.S.C. 3001 et seq.
The
basis for the disallowance was the State's failure to obligate
these
funds by the end of FY 1984 on September 30, 1984. For the
reasons
discussed below, we uphold the disallowance.
I. The Obligation Requirement
Regulations applying to the Older Americans Program provide:
Except as provided in paragraph (b) of this section
[concerning the
"reallotment" of funding], the State
agency must obligate any funds
received under this
part during the fiscal year in which they are
allotted.
45 CFR 1321.197(a).
Obligation has been characterized as "a definite commitment which
creates
a legal liability of the Government for the payment of
appropriated funds for
goods and services ordered or received." Decision
of the U.S. Comptroller
General, B-116795, June 18, 1954. The
Comptroller Genera! "has
generally avoided a universally applicable
legal definition of the term
'obligation,' and has instead analyzed the
nature of the particular
transaction at issue to determine whether an
obligation has been incurred."
Decision of the U.S. Comptroller
General, B-192282, April 18, 1979.
The State referred to a general definition of "obligations" found in
45
CFR 74.71, which pertains to financial reporting requirements
for
Department grantees. As such, the regulation does not
specifically
implement the program requirement in 45 CFR 1321.197 that funds
be
obligated by the end of the fiscal year. However, the definition
is
consistent with the.- 2 -
Comptroller General decisions cited above and may provide some
general
guidance to determining whether there has been an obligation:
"Obligations" are the amounts of orders placed,
contracts and
subgrants awarded, services received,
and similar transactions
during a given period,
which will require payment during the same
or a
future period.
45 CFR 74.71. The Board has previously concluded that the key issue
in
determining whether a state timely obligated funds as required by 45
CFR
1321.197 is whether there was, during the fiscal year, a
definite
commitment requiring payment. See Texas Department on Aging,
Decision
No. 571, September 12, 1984, pp. 4-5.
II. The Facts of this Case
The State entered into a contract with the New Mexico District II Area
on
Aging, Inc. (District II) to provide services under the Older
Americans
Act. The contract was signed by the State on July 3, 1984 and
by
District II on June 29, 1984. State's Ex. 5a. The
contract
incorporated by reference a Notification of Grant Award (NGA), which
had
several sections, including an "approved budget" and a "computation
of
grant." State's Ex. 5b. 1/ The parties agreed that the NGA's
"approved
budget" of $2,428,983 ($1,205,332 federal share) included $133,970
in
costs to which the funds in dispute were ultimately applied.
The
"computation of grant" on this NGA, however, listed under
"[n]ew
obligational authority herein awarded" only $368,353 in federal
funds;
the parties agreed that this amount did not include the $133,970
in
dispute here.
The State issued amendments to the original contract to
"release
additional federal funds as the funds [became] available."
State's
Brief, p. 4. Amendment No. 2 to the contract, OHDS' Exhibit 2,
was
signed by the State on September 28, 1986, only two days prior to
the
end of FY 1984. Amendment No. 3 to the contract "released" the
$133,970
in federal funds which are in dispute, according to the State.
State's
Ex. 5c. Amendment No. 3 was signed by representatives of the
State and
of District II on October 30 and October 31,
1/ The blanks on the NGA form which were apparently intended
to
describe the time period to which the budget applied were not
filled
out. However, two contract amendments, State's Exhibit 5c and
OHDS'
Exhibit 2, describe the precisely identical budget as pertaining to
the
period July 1, 1984 to June 1, 1985.
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1984, respectively, after the end of FY 1984. Amendment Nos. 2
and 3
also were each accompanied by a Notification of Grant Award, the
same
basic NGA form as that incorporated into the original contract. 2/
The
NGA for Amendment Nos. 2 and 3 repeated the same entries under
the
category "approved budget" as that for the NGA to the original
contract.
Under the "computation of grant" category, the NGA to Amendment No.
3
listed the $133,970 that is in dispute as the federal share on the
line
for "[n]ew obligational authority herein awarded." State's Ex. 5c.
Although Amendment No. 3 was signed on October 30 and 31, the
State
maintained that it should be considered effective before the end of
the
fiscal year. State's Exhibit 6, an October 29, 1984 memorandum from
the
State Agency on Aging to the State Division of Finance
and
Administration (DFA), was signed by the Secretary of DFA next to
the
notation "Waiver Approved." The four-sentence memorandum requested
a
"waiver on the effective date" of the contract because "[a]llocation
of
these funds in this manner had been planned for several months but
no
contract was executed." The memorandum further explained: "The
effective
date of the contract must be September 30, 1984 in order to avoid
the
loss of federal funds in the amount of $134,000."
III. Analysis
In maintaining that the $133,970 was obligated by the State before
the
close of FY 1984, the State presented the following arguments.
First,
the State maintained that the State had "waived" the October date
and
retroactively established the amendment date to be September 30,
1984.
Second, the State argued that the NGA incorporated into the
original
contract, executed before the close of the fiscal year, obligated
the
funds. The State also argued generally that the disallowance
was
inequitable. We discuss these arguments in turn below.
2/ Only the original contract stated that the attached NGA
was
"incorporated by reference." State's Ex. 5a, p. 2 of the
contract.
However, Contract Amendments Nos. 2 and 3 and their attached
NGA's
appear in an identical format, indicating that these NGA's were part
of
the contract amendments to which they were appended. OHDS' Ex.
2;
State's Ex. 5c. Further, the parties in their briefs assumed that
the
two later NGA's were also incorporated by reference.
- 4 -
A. The State could not retroactively change the date of obligation.
In its notice of appeal, the State argued that the Contract Amendment
No.
3, which released the $133,970 in dispute to District II, should
be
considered as "effective" on September 30, 1984 because of a "waiver"
by
the State Department of Finance and Administration. Although the
State
did not continue to argue this point in its brief, we respond briefly
to
the argument below. 3/
To accept a state's argument that it may "waive" the effective date of
a
contract in order to claim that funds were obligated by a certain
date
would render meaningless the regulatory requirement that funds
be
obligated by the end of the fiscal year in which they were awarded.
The
State's "waiver" does not alter the uncontroverted fact that
Amendment
No. 3 to the contract was signed by both parties at the end of
October
1984, after the end of the fiscal year. We therefore conclude
that we
cannot accept the "waiver" of the contract's signature date as
evidence
that the funds were obligated in a timely manner.
B. The Notification of Grant Award here did not constitute
an
obligation of funds.
The State alternatively argued that the NGA incorporated into the
original
contract obligated the $133,970 in dispute. The State noted
that the
Board has previously recognized that a notification of grant
award may
constitute an obligation of
3/ The State in its brief emphasized that before March 1986,
including
the time when the notice of appeal was filed, the State was
not
represented by counsel. The State observed that the record
indicates
the State's apparent admission that the funds in dispute were
not
"obligated" during the fiscal year, but explained that this
apparent
admission stemmed from a misunderstanding of the technical meaning
of
obligation of funds. The State urged the Board to "look beyond"
the
statement that the funds were not "obligated" during the fiscal
year.
State's Brief, pp. 8-10.
We find that we do not need to consider whether the
State should be
bound by its earlier statements
since, as explained in the
decision, we have
analyzed the parties' complete arguments and
appeal
files and have concluded on the record that the funds
were
not obligated by the end of FY 1984.
- 5 -
funds, citing Montana Department of Social and Rehabilitation
Services,
Decision No. 549, July 3, 1984.
The State is correct that an NGA may constitute an obligation of funds.
In
any particular case, however, the Board would clearly need to analyze
how the
NGA in question is worded and the context in which it operates
in evaluating
whether the NGA was a definite commitment that constituted
an obligation of
funds.
In the present appeal, the State would have a stronger case if
the
"approved budget" section of the NGA to the original contract,
which
included the $133,970, stood alone as the sole component of the
NGA.
Even in such a case, however, the State would need to demonstrate
how
approval of a budget constituted a definite commitment of the State
to
pay the full budgeted amount out of a specific year's funds. The
State
presented only a conclusory argument, and no evidence, to support
a
conclusion that budget approval constituted such a commitment.
In any event, the "approved budget" section of the NGA here obviously
must
be considered in conjunction with the remainder of that form,
including the
"computation of grant" section which appears directly
below it. The
name and wording of the section itself indicates that
this was the part of
the NGA form intended to describe the amount of
funding which was granted to
District II.
Line 8 of the "computation of grant" section reads:
"Federal/State
Shares will be Comprised of:" and then lists possible sources
of federal
and state shares. Line 8(b) describes the "carry over" from
the
previous period and line 8(c) describes the "new obligational
authority
herein awarded," listing both the federal and state shares of the
award.
The $133,970 in dispute is clearly listed as the federal share on
line
8(c) of the NGA appended to Contract Amendment No. 3, which we
have
concluded was not executed prior to the end of FY 1984. 4/ This NGA
is
identified as a
4/ The "computation of grant" section also includes on line
1
("Estimated total cost") the $2,428,983 which is the total
budgeted
amount and on line 6 ("Federal share of net cost") the $1,205,332
which
appears on the budget as the total federal share. A careful
reading of
the "Remarks" section of the NGA indicates, however, that the
$2,428,983
is only an "estimated net project cost" and that the $1,205,332 is
a
"ceiling" on the federal share and is subject to certain
conditions
(i.e., satisfactory progress, adequate justification, and
availability
of funds). State's Ex. 5b. - 6 -
"Revision of Earlier Grant." Since the only change is on line 8(c),
the
logical conclusion is that the $133,970 was not part of the
funds
granted by the original NGA.
Our conclusion that line 8 of the NGA's "computation of grant"
section
obligated funds, rather than the "approved budget" section, is
further
reinforced by the contract into which the NGA was incorporated
by
reference. OHDS argued that the NGA was by nature "ambiguous"
and
"could not control the more specific language of the contract."
OHDS'
Brief, p. 6. We do not specifically decide whether the language
of the
contract and its amendments superseded the NGA's which
they
incorporated, but nonetheless find it highly significant that the
amount
of funding authorized by the contract and each of the
amendments
corresponded precisely with the sum of money described on line
8(c) in
the "computation of grant" section for each of the NGA's and was
only
some part of the funds listed as the "approved budget." The
original
contract is a 16-page formal document which includes an
extensive
description of the duties of District II, as well as the
specific
amounts of funding released by the State under each relevant
statutory
provision. State's Ex. 5a. Each of the contract
amendments also
described the monies released under each statutory
provision. Read in
conjunction with the NGA's, the contracts clearly
support the conclusion
that the amount of federal funds obligated was not the
total federal
share of the approved budget but was only the amount of federal
funds
"awarded" on line 8 of the "computation of grant" section of the
NGA.
The State interpreted the relationship between the contract and the
NGA
differently, arguing that the NGA to the original contract was itself
a
"contract and subgrant awarded," one of the examples of an
"obligation"
as defined in 45 CFR 74.71. The State further argued that
by the NGA
the State was "contractually bound to fulfill the entire amount of
grant
awarded thereunder," referring to the total sum specified in
the
"approved budget" portion of the NGA. State's Brief, pp. 5-6.
However, the State did not seek to demonstrate how either the contract
or
the NGA contractually bound the State to eventually spend the
disputed sum
because of its inclusion in the "approved budget" amount.
The contract itself
was not silent on the question of what money had to
be spent to satisfy the
contract, but instead listed under each
statutory provision the dollar amount
which the State "shall pay the
Contractor . . . for the provision of
services. . . ." Those dollar
amounts did not reflect the full amount of
federal funds described by
the "approved budget" part of the NGA, as we have
explained above, but
rather corresponded precisely
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with the smaller amount described by line 8(c) of the "computation
of
grant" part of the NGA.
In sum, we conclude that line 8 of the "computation of grant" section
of
the NGA described the funding which represented a definite commitment
of
the State and thus an obligation, as also reflected in the
contracts.
The State was not legally bound to pay all amounts listed on
the
approved budget part of the NGA.
The State relied upon two Board decisions in arguing that the
NGA
incorporated into the original contract constituted an obligation of
the
$133,970. We find the circumstances of both of those decisions to
be
distinguishable from the present appeal.
The State first argued that this case was analogous to that decided
in
Montana Department of Social and Rehabilitation Services, Decision
No.
549, July 3, 1984. The Board found in that decision that the
language
of the NGA's at issue there "unquestionably binds the State agency
to
turn over funds" to the local agency and "the award language does
not
appear to be susceptible to any other interpretation." Montana, p.
4
(footnote omitted). As we have discussed above, the language of the
NGA
here is susceptible of another interpretation, i.e., that the
State's
commitment extended only to funds listed under line 8 of
the
"computation of grant" section, not to the full budgeted amount. 5/
The State also cited Texas Department on Aging, Decision No.
571,
September 12, 1984, for the proposition that a "clear intent"
to
obligate funds may exist even in the absence of a signed document
to
obligate the funds. The State argued that such a clear intent
existed
in the present case. State's Brief, pp. 7-8. The
situation considered
in Texas was very different from the present case,
however. In Texas, a
State agency official, authorized to grant funds,
had sent a letter to
the subgrantee during the fiscal year approving the use
of the funds in
question as a carryover. The Board found that this
constituted an
obligation because preceding events, including approval of a
method of
allocating funds and written
5/ The Agency in that case did not even dispute that the NGA
there
might per se constitute a binding commitment of funding, but
instead
objected to the State's practice of awarding the funds by the NGA to
a
lead agency, which then would have to redistribute the funds to
the
actual entity which would provide the program services. In the
present
case, by contrast, there is no issue of a redistribution of funds by
the
contractor. - 8 -
communications between the State and the subgrantee, eliminated
any
ambiguity about whether the approval meant that Texas was legally
bound
to pay the funds in question. While the Board noted that the
events
made it clear what that State's intent was with regard to the funds,
the
Board also noted that mere intent is insufficient to create
an
obligation.
Here, the State said that it had been "planning" to obligate the
funds
earlier, but the State's own document indicates that this was merely
a
general intent to obligate all federal funds and that the choice
to
provide the $133,970 in funds to District II was made subsequent to
the
end of the fiscal year (based on the somewhat arbitrary factor that
that
district was geographically closest to the State office so the
contract
amendment could be processed relatively quickly). State's
Ex. 10.
We therefore conclude that the State's reliance on Montana and Texas
is
misplaced.
C. The disallowance should not be reversed on equitable grounds.
In the last part of its brief, the State argued that for the Board
to
uphold the disallowance in this appeal would be "inequitable
and
contrary to the goals of administrative law." State's Brief, p. 10.
One
basis for this was the explanation that during 1984 there was a
major
reorganization of the State government which streamlined the
contracting
process and caused a temporary disruption which delayed
the
"formalizing" of Contract Amendment No. 3. The State also argued
that
the disallowance would work a particular hardship on the State's
program
in light of declining State revenues and recent budget cuts.
State's
Brief, pp. 10-11.
The Board's power is expressly limited by Department regulations,
which
provide that we are "bound by all applicable laws and regulations."
45
CFR 16.14. The Board has also concluded in previous decisions that
it
is not empowered to award grants. Here, we have found that the
State
did not meet the regulatory requirement to obligate the $133,970
during
FY 1984.
We also note that the failure to obligate the funds in a timely
manner
appears to have been caused by the State's own delay, as reflected
in
the State's admission that "[a]llocation of these funds . . . had
been
planned for several months but no contract was executed." State's
Ex.6.
The significance of the state's point that the contracting .
- 9
-
process was disrupted is further weakened by the fact that
Contract
Amendment No. 2 was signed on September 28, 1986, just prior to
the
close of the fiscal year. It would appear to have been a simple
matter
to have included the $133,970 in that amendment, rather than executing
a
separate amendment at a later date.
The State's apparent implication that the obligation requirement is
an
overly technical one is not a proposition we can accept. The
purpose
behind the requirement is to enable the federal Commissioner on Aging
to
fulfill a statutory duty to timely reallot to other states any
amount
which was allotted to a state which that state has not used for
the
intended purpose. Section 304(b) of the Older Americans Act; see
45
Fed. Reg. 21145 (March 31, 1980). Thus, OHDS was reasonable in
holding
the State to the requirement.
Conclusion
For the reasons stated above, we uphold the disallowance.
________________________________ Cecilia Sparks Ford
________________________________ Norval D.(John) Settle
________________________________ Judith A. Ballard
Presiding
Board