B-196794, JANUARY 17, 1980, 59 COMP.GEN. 218

B-196794, JANUARY 17, 1980, 59 COMP.GEN. 218

STATES - FEDERAL AID, GRANTS, ETC. - INTEREST ON FEDERAL FUNDS - INTERGOVERNMENTAL COOPERATION ACT OF 1968 EFFECT - APPLICABILITY TO NON GOVERNMENTAL SUBGRANTEES NON-GOVERNMENTAL SUBGRANTEES OF FEDERAL GRANTS TO STATES ARE ENTITLED TO KEEP INTEREST EARNED ON ADVANCES FROM THE STATES. SECTION 203 OF THE INTERGOVERNMENTAL COOPERATION ACT, 42 U.S.C. 4213, WHICH EXEMPTS STATE GRANTEES FROM ACCOUNTING TO THE FEDERAL GOVERNMENT FOR INTEREST EARNED ON GRANT ADVANCES, SERVES TO EXEMPT SUBGRANTEES AS WELL.

MATTER OF: DEPARTMENT OF LABOR - INTEREST ON STATE ADVANCES TO SUBGRANTEES, JANUARY 17, 1980:

THIS DECISION RESPONDS TO AN INQUIRY FROM THE ACTING DIRECTOR OF THE OFFICE OF GRANTS, PROCUREMENT AND ADP MANAGEMENT POLICY. DEPARTMENT OF LABOR (DOL) ON WHETHER NON-GOVERNMENTAL SUBGRANTEES OF STATE RECIPIENTS OF FEDERAL GRANTS ARE ACCOUNTABLE TO THE FEDERAL GOVERNMENT FOR INTEREST EARNED ON ADVANCES MADE BY THE STATES FROM GRANT FUNDS. THE INQUIRY GROWS OUT OF QUESTIONS RAISED BY NON-GOVERNMENTAL SUBGRANTEES CONCERNING THE APPLICATION OF DOL REGULATIONS, 41 C.F.R. 29-70.205-2. WE CONCLUDE, FOR THE REASONS GIVEN BELOW, THAT THE SAME RATIONALE THAT JUSTIFIES EXEMPTING GOVERNMENTAL SUBGRANTEES FROM REMITTING TO THE FEDERAL GRANTOR AGENCY INTEREST EARNED ON FEDERAL GRANT FUNDS RECEIVED FROM THE STATES, APPLIES EQUALLY TO NON-GOVERNMENTAL SUBGRANTEES.

AS A GENERAL RULE, INTEREST EARNED BY GRANTEES ON GRANT FUNDS ADVANCED BY THE FEDERAL GOVERNMENT MUST BE PAID OVER TO THE UNITED STATES UNLESS EARNED AS PART OF THE AUTHORIZED PROGRAM OR OTHERWISE SPECIFICALLY EXCEPTED. 42 COMP.GEN. 289(1962) AND CASES CITED THEREIN. THE MAJOR EXCEPTION TO THIS LONG ESTABLISHED RULE IS CONTAINED IN SECTION 203 OF THE INTERGOVERNMENTAL COOPERATION ACT OF 1968, 42 U.S.C. 4213(1976). THAT SECTION PROVIDES:

HEADS OF FEDERAL DEPARTMENTS AND AGENCIES RESPONSIBLE FOR ADMINISTERING GRANT-IN-AID PROGRAMS SHALL SCHEDULE THE TRANSFER OF GRANT-IN-AID FUNDS CONSISTENT WITH PROGRAM PURPOSES AND APPLICABLE TREASURY REGULATIONS, SO AS TO MINIMIZE THE TIME ELAPSING BETWEEN THE TRANSFER OF SUCH FUNDS FROM THE UNITED STATES TREASURY AND THE DISBURSEMENT THEREOF BY A STATE, WHETHER SUCH DISBURSEMENT OCCURS PRIOR TO OR SUBSEQUENT TO SUCH TRANSFER OF FUNDS, OR SUBSEQUENT TO SUCH TRANSFER OF FUNDS. /1/ STATES SHALL NOT BE HELD ACCOUNTABLE FOR INTEREST EARNED ON GRANT-IN-AID FUNDS, PENDING THEIR DISBURSEMENT FOR PROGRAM PURPOSES.

AS RECOGNIZED IN THE DOL INQUIRY, OUR DECISION, B-171019, OCTOBER 16, 1973, CONCLUDED THAT:

SECTION 203 EXEMPTS STATES FROM ACCOUNTABILITY FOR INTEREST EARNED ON GRANT-IN-AID FUNDS RECEIVED BY THEM AND MAKES NO DIFFERENTIATION BETWEEN GRANTS WHICH THE STATES WILL DISBURSE THEMSELVES AND GRANTS INVOLVING FUNDS WHICH WILL BE SUBGRANTED BY THE STATES. MOREOVER, WE HAVE FOUND NOTHING IN THE LEGISLATIVE HISTORY OF SECTION 203 OR IN SUBSEQUENT HEARINGS WHICH MAKES SUCH A DIFFERENTIATION. THUS, IT SEEMS CLEAR TO US THAT STATES ARE NOT TO BE HELD ACCOUNTABLE FOR INTEREST EARNED ON ANY GRANT-IN-AID FUNDS PENDING THEIR DISBURSEMENT, WHETHER OR NOT THE STATES INTEND, OR ARE REQUIRED BY THE TERMS OF THE GRANT, TO SUBGRANT THESE FUNDS. TO HOLD OTHERWISE WOULD, OF COURSE, REQUIRE THE STATES TO ASSUME THE BURDEN OF ACCOUNTING FOR THE PRESUMABLY RELATIVELY SMALL AMOUNTS OF INTEREST WHICH WOULD BE EARNED ON THESE FUNDS IN CONTRAVENTION OF THE LEGISLATIVE INTENT BEHIND THE LAST SENTENCE IN SECTION 203. ACCORDINGLY, WE BELIEVE POLITICAL SUBDIVISIONS RECEIVING FEDERAL GRANTS-IN-AID THROUGH STATE GOVERNMENTS ARE ENTITLED TO RETAIN MONIES RECEIVED AS INTEREST EARNED ON SUCH FEDERAL FUNDS.

A GOVERNMENTAL GRANTEE MUST QUALIFY AS A STATE OR STATE INSTRUMENTALITY IN ORDER TO QUALIFY DIRECTLY FOR THE SECTION 203 EXCEPTION. ALL OTHER GRANTEES, INCLUDING LOCAL GOVERNMENTS, REMAIN SUBJECT TO THE GENERAL RULE REQUIRING THE RETURN OF INTEREST EARNED ON ADVANCES OF GRANT FUNDS BY THE FEDERAL GOVERNMENT. AS INDICATED IN OUR 1973 DECISION, THE QUESTION OF SUBGRANTEES IS NOT ADDRESSED IN THE LEGISLATION AND WAS NOT EXPRESSLY CONSIDERED IN THE LEGISLATIVE HISTORY. HOWEVER, IN THAT DECISION, WE CONCLUDED THAT THE SUBGRANTEE OF A STATE GRANTEE WAS EXEMPT. WE ARE UNABLE TO SEE ANY BASIS FOR DISTINGUISHING BETWEEN GOVERNMENTAL AND NON- GOVERNMENTAL SUBGRANTEES IN THIS REGARD.

ACCORDINGLY, WE CONCLUDE THAT NON-GOVERNMENTAL SUBGRANTEES OF FEDERAL GRANTS TO THE STATES ARE ENTITLED TO KEEP ANY INTEREST THEY MAY EARN ON ADVANCES FROM THE STATES. WE NOTE THAT UNDER SECTION 203 OF THE INTERGOVERNMENTAL COOPERATION ACT OF 1968 AND TREASURY CIRCULAR NO. 1075, FEDERAL DEPARTMENTS AND AGENCIES MUST CONTROL THE FLOW OF ADVANCES TO THE STATES AT THE STATE LEVEL IN ORDER TO PREVENT GRANT FUNDS FROM BEING ADVANCED BEFORE THEY ARE NEEDED.

/1/ SO IN ORIGINAL.