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Second Appeal Analysis
PA ID# 113-UUK611-00; Palo Cooperative Telephone Association
PW ID# 5182; Central Office Facility
Severe storms, tornadoes, and flooding between May 25 and August 8, 2008, resulted in a major disaster declaration on May 27, 2008. The Palo Cooperative Telephone Association’s (Applicant) Central Office building was flooded with two feet of floodwater causing water damage to the 1,620 square foot concrete masonry and metal building and destroying telephone communications equipment. The Applicant serves approximately 525 customers including the Duane Arnold Nuclear Energy Center. FEMA prepared PW 5182 for $409,199 to replace the destroyed telecommunications equipment housed in the Central Office building. FEMA also prepared PW 4456 for $33,312 to repair non-structural damage to the building. The equipment was replaced, the building was repaired, and the Applicant’s Central Office is fully operational.
In July 2009, subsequent to the repair of the building, FEMA field personnel developed a version to PW 5182 that would have allowed for the replacement of the Central Office building under Title 44 Code of Federal Regulations (44 CFR) §206.226(f), Restoration of damaged facilities, Repair vs. replacement, or the “50 Percent Rule.” In contrast to the original PWs, which separated building damage from the destroyed contents, this recommendation combined the estimated cost of building repairs and the replacement cost of the communications equipment into one total repair estimate. The combined cost of building and contents damage resulted in a repair estimate that exceeded the 50 percent threshold, which could have made the damaged building eligible for replacement. This PW version was never approved or obligated.
The Applicant submitted a request on September 24, 2009, to permanently relocate the Central Office building and equipment to a higher elevation. On October 5, 2009, the Iowa Homeland Security and Emergency Management Division (HSEMD) forwarded the Applicant’s request and recommended approval based on HSEMD’s validation of the “50 Percent Rule” calculation, certification that the original location of the building was subject to repetitive damage, and that the relocation was cost effective in accordance with Title 44 Code of Federal Regulations (44 CFR) §206.226(g)(1) Restoration of damaged facilities, Relocation.
FEMA denied the request on March 16, 2011, on the basis that the facility was not located in the 100-year or 500-year floodplain, the Applicant did not demonstrate that the facility would be subject to repetitive heavy damage if not relocated, and the actual repair costs provided by the Applicant did not exceed 50 percent of the cost to replace the facility.
The Applicant submitted a first appeal on May 16, 2011, urging FEMA to reconsider its determination and stating that the services the Applicant provided to the community and the Duane Arnold Nuclear Energy Center were critical and needed to be protected. The Applicant further stated that it had incurred costs associated with relocation with the understanding that FEMA approval was a formality. HSEMD forwarded the appeal to FEMA on August 8, 2011, stating the Central Office building and equipment together is a communication system and eligible for replacement under the “50 Percent Rule.” In addition, HSEMD stated that the facility in its current location is subject to repetitive heavy damage from flooding and must be relocated.
The Regional Administrator denied the appeal on December 15, 2011, determining that the actual repair costs for the facility did not exceed 50 percent of the cost to replace the facility, and the facility was not eligible for permanent relocation because the Applicant had not demonstrated that the facility was subject to repetitive heavy damage.
The Applicant submitted a second appeal to HSEMD dated January 31, 2012, again requesting replacement and relocation. HSEMD forwarded the appeal on March 23, 2012, requesting a replacement facility on the basis that the telecommunications equipment should be considered an integral component of the building rather than contents, and as such, should be included in the 50 percent calculation. With regard to relocation, HSEMD requests that FEMA exercise its discretion to relocate the Central Office because the facility provides critical services for the nearby nuclear power plant. HSEMD supports the Applicant’s statements that the facility is subject to repetitive flooding and relocation would be cost effective. However, HSEMD also claims that they have not had an opportunity to develop a cost-effectiveness analysis because specific relocation guidance was not made available until recently. For this reason, HSEMD requests that FEMA consider remanding the cost-effectiveness determination to the Regional Office.
In accordance with 44 CFR §206.226(f) Restoration of damaged facilities, Repair vs. replacement and the Public Assistance Guide, FEMA 322 dated July 2007 (page 36) the cost of building contents is not included in repair costs when determining whether a building is eligible for replacement. The Applicant disputes FEMA’s determination that the telecommunications equipment installed in the Central Office building is considered “contents” and is not to be used in the repair estimate for the “50 Percent Rule” calculation. The Applicant claims the telecommunication equipment was permanently installed making it an integral component of the building. On behalf of the Applicant, HSEMD cites various litigation cases, Iowa tax code, and National Flood Insurance Program (NFIP) definitions to support the treatment of the telecommunications equipment as a building component. HSEMD also includes letters and determinations from various FEMA staff indicating that the telecommunications equipment is a component of the building and that the building qualifies for replacement. While the Applicant may have relied on these statements, per 44 CFR §206.201(m) Definitions used in this sub-part, a project is officially approved only when the Regional Administrator signs “an approval of work and costs on a project worksheet.” As stated earlier, no version of the PW including the telecommunications equipment as a component of the building was approved.
According to the PW documentation, the equipment destroyed in the disaster included a digital multiplex system, emergency power batteries, channel bank equipment, Fujitsu communication components, a power inverter and DSL service equipment. These various pieces were attached to a cable grounding bus bar, equipment racks, cable raceways, battery racks and main cable rack installed in the building. In general, this type of equipment is not considered to be a component of the building. Unlike building systems such as mechanical, electrical, and plumbing systems, the installed telecommunications equipment is not required for the building to function, nor is it required by building codes and standards. This is consistent with the definition of building, or “structure”, as applicable to the NFIP and found in 44 CFR §59.1, Definitions, where a structure is defined as a walled and roofed building. Relative to contents, items such as “merchandise, furniture, fixtures, machinery, equipment and supplies” are defined as personal property within an enclosed structure. Based on the above, the telecommunications equipment is correctly considered contents and, therefore, not included in the building repair costs for the “50 Percent Rule” calculation. Because the repair costs do not exceed 50 percent of the replacement cost, the building is not eligible for replacement.
Relative to permanent relocation, 44 CFR §206.226(g) Restoration of damaged facilities, Relocation allows the Regional Administrator to approve funding for a destroyed facility at a new location when the facility is and will be subject to repetitive heavy damage; the approval is not barred by other provisions of 44 CFR; and the overall project, including all costs, is cost effective. Approval of such projects is at the discretion of the Regional Administrator. Both the Applicant and HSEMD acknowledge that the Central Office building is not located in a special flood hazard area (SFHA). In addition, other than anecdotal statements, there has been no evidence brought forth that the facility is or will be subject to repetitive heavy flooding. On this basis, the Regional Administrator appropriately determined that permanent relocation is not justified.
In terms of cost-effectiveness, applicable policy at the time of the disaster, Recovery Fact Sheet 9580.102, Permanent Relocation, dated November 2, 2006, states “for relocation to be cost effective, the eligible costs associated with relocating the damaged facility must not exceed the cost of the damages (the cost to replace the facility at its original location).” The June 2007 version of the Public Assistance Guide, FEMA 322 dated June 2007 states: “Generally, the project will only be cost effective if the damage is severe enough that the facility qualifies for replacement.” As determined above, the facility was not destroyed and does not meet the threshold for replacement. In fact, the Central Office building has been repaired, the equipment replaced and the facility is operational. For these reasons, cost-effectiveness is not an issue and there is no reason to remand the determination to the Region.
Lastly, the Applicant presents the communication services provided to the nearby nuclear power plant as critical, thereby justifying relocation. Again, for the reasons stated above, relocation of the facility is not justified, nor has evidence been provided that there is an increased risk of interrupted services due to the facility’s existing location.
The telecommunications equipment housed in the Applicant’s Central Office building is considered contents and should not be included in the “50 Percent Rule” calculation. The eligible building repair costs do not exceed 50 percent of the building replacement costs and, therefore, the building is not eligible for replacement. In addition, the Regional Administrator’s decision to deny permanent relocation is upheld based on the fact that the facility is not located in a SFHA and has no demonstrated history of repetitive flood damage.