Temporary Facilities

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1763-DR-IA
Applicant Aplington-Parkersburg Schools
Appeal TypeSecond
PA ID#023-01F68-00
PW ID#596
Date Signed2012-09-21T00:00:00

Citation:  FEMA-1763-DR-IA, Aplington-Parkersburg Schools, Temporary Facilities, Project Worksheet (PW) 596

Cross-
Reference:
 Insurance 

Summary:  On May 25, 2008, an Enhanced Fujita (EF)-5 tornado destroyed school facilities owned by the Aplington-Parkersburg schools (Applicant).  FEMA prepared PW 596 to reimburse the Applicant for temporary relocation of facilities, which included the construction of a gymnasium.  The Applicant stated its intentions to retain the temporary gymnasium as a permanent facility.  FEMA documented the estimated construction cost of the 8,123 square foot concrete block temporary gymnasium at $1,148,512.  During the review process, FEMA found that a concrete block temporary facility was not the least costly option, and revised the Scope of Work.  The revised PW 596 stated that a steel building ($1,140,000) was more cost effective than the concrete block building as originally written.  The original PW 596 stated “no salvage value is included” for temporary facilities.  This was replaced with a statement that FEMA would require compensation in an amount equal to FEMA’s proportionate equity in the facility when the authorized temporary relocation time period had ended.  FEMA obligated PW 596 on September 12, 2008, for $1,379,857, of which $1,140,000 was estimated for the construction of a steel gymnasium.

FEMA later deducted $247,500 from PW 596 for its proportionate equity.   In its first appeal, dated August 12, 2010, the Applicant asserted: 1) FEMA did not advise the Applicant that the fair market value of the temporary gymnasium would be calculated and funding might have to be returned; and 2) FEMA miscalculated the fair market value of the facility.  FEMA denied the appeal on October 25, 2011.  In the second appeal, dated December 13, 2011, the applicant reiterates its position from the first appeal.  The grantee does not support the Applicant’s appeal.

Issue:  Is FEMA required to be compensated its proportionate equity in a temporary relocation facility?

Finding: Yes.

Rationale:  44 CFR §13.31, Real Property, and FEMA Policy RP9523.3, Provision of Temporary Relocation Facilities.
 

Appeal Letter

September 21, 2012

Mark Schouten
Administrator
Iowa Homeland Security and Emergency Management Division
7105 NW 70th Avenue
Camp Dodge, Bldg. W-4
Johnston, Iowa 50131-1824

Re:   Second Appeal– Aplington-Parkersburg Schools, PA ID 023-01F68-00, Temporary Facilities, FEMA-1763-DR-IA, Project Worksheet (PW) 596

Dear Mr. Schouten:

This letter is in response to your letter dated February 28, 2012, which transmitted the referenced second appeal on behalf of the Aplington-Parkersburg Schools (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) reduction of $247,500 in temporary facilities funding for the Applicant’s gymnasium.

As explained in the enclosed analysis, I have determined that the Regional Administrator’s decision is consistent with applicable regulations and policy.  At the end of the authorized temporary relocation time period or when the Applicant no longer needs the facility for the authorized temporary relocation purpose, the Applicant has the option to keep the facility by retaining the title to it, or the Applicant may sell the facility. FEMA is required to reduce funding based on the Federal share, or “proportionate equity”, in the fair market value or sale proceeds of the facility.  

Additionally, the Applicant’s second appeal of PW 4674, requesting funding for costs associated with an accelerated construction timeline, affects the funding of PW 596.  FEMA will obligate $280,000 to PW 596 to account for insurance proceeds reapportioned to PW 4674.  By copy of this letter, I am requesting that the Regional Administrator take appropriate action to implement this determination.

Please inform the Applicant of my decision.  This determination is the final decision on this matter pursuant to 44 CFR §206.206, Appeals.

Sincerely,
/s/

Deborah Ingram
Assistant Administrator
Recovery Directorate

Enclosure

cc:  Beth Freeman
      Regional Administrator
      FEMA Region VII

Appeal Analysis

Background

On May 25, 2008, an Enhanced Fujita (EF)-5 tornado struck the City of Parkersburg destroying the Aplington-Parkersburg Community High School (APCHS), including the gymnasium, four busses, and four vans.  FEMA prepared Project Worksheet (PW) 596 to reimburse the Applicant for temporary relocation of facilities, which included construction of a gymnasium.  The Applicant decided to retain the temporary gymnasium as a permanent facility.  During the PW review process, FEMA discovered calculation errors in the quote provided by the contractor and found that a concrete block temporary facility was not the least costly option.  FEMA revised the PW to state that a cost comparison of construction options for the temporary gymnasium facility found that a steel building ($1,140,000) was more cost effective than the concrete block building.  The original PW 596 included the comment “no salvage value is included” for temporary facilities.  FEMA replaced this comment with a statement that FEMA would require compensation in an amount equal to FEMA’s proportionate equity in the facility when the authorized temporary relocation time period had ended.  The construction of the gymnasium was funded as a temporary facility.

In accordance with applicable regulations and policy, at the end of the authorized temporary relocation time period or when the Applicant no longer needs the facility for the authorized temporary relocation purpose,  the Applicant has the option to keep the facility by retaining the title to it, or the Applicant may sell the facility.  In either situation, FEMA is required to reduce funding based on the Federal share, or “proportionate equity”, in the fair market value or sale proceeds of the facility.  This amount represents the proportion of the funding that FEMA contributed to the original temporary facility project.   Under regulation, FEMA would have reduced funding by this amount when the temporary facility was no longer needed.  This is calculated by multiplying the percentage of FEMA’s contribution to the total cost of the purchase/construction of a facility to the fair market value or sale proceeds of the facility.  This calculation also takes into consideration reasonable out-of-pocket costs related to the sale.  FEMA and the Iowa Homeland Security and Emergency Management Division (IHSEMD) both reviewed PW 596 and it was obligated on September 12, 2008, for $1,379,857.  This included $1,140,000 estimated for the construction of a steel gymnasium facility.  The Applicant states that they were never made aware of the changes prior to signing PW 596 Version 1.

On January 18, 2011, at the end of the temporary relocation time period, FEMA received an appraisal from an independent commercial real estate appraisal and consulting firm which determined that the fair market value of the Applicant’s facility was $750,000.  FEMA calculated its percentage of participation by first taking the $1,140,000 for the least cost alternative and deducting $500,000 for the insurance proceeds that were applied to the gymnasium facility.  At 90 percent, the Federal cost share of the $640,000 was $576,000.  FEMA’s percentage of participation is $576,000 divided by $1,754,703 for actual construction costs, which yielded 33 percent.  In accordance with 44 CFR §13.31(c)(1), Real Property, Disposition, and FEMA Policy 9523.3, Provision of Temporary Relocation Facilities, dated July 18, 1998, because the Applicant chose to keep the facility, FEMA calculated its proportionate equity of $247,500, and reduced the project cost by that amount. 

First Appeal

IHSEMD forwarded the Applicant’s first appeal on August 16, 2011.  The Applicant asserted that FEMA reduced the project costs in error because: 1) FEMA did not advise the Applicant that the salvage value of the temporary gymnasium would be calculated and funding might have to be returned; and 2) FEMA miscalculated the salvage value of the facility.  The Applicant received a calculated salvage value from its insurance company totaling $590,012 as well as a salvage value from Larson Construction for $81,000 for salvage of steel and other components.  The Applicant argued FEMA inappropriately used a salvage value of $1,254,703 for its temporary gymnasium.  FEMA’s Regional Administrator denied the appeal on October 25, 2011, stating that the Applicant’s facility had a fair market value of $750,000.  In accordance with 44 CFR §13.31(c)(1), Real Property, Disposition, and  FEMA Policy 9523.3, Provision of Temporary Relocation Facilities, FEMA’s proportionate equity was $247,500.

Second Appeal

The Applicant submitted its second appeal on December 13, 2011, which IHSEMD transmitted to FEMA on February 28, 2012.  In its second appeal, the Applicant reiterates its position from the first appeal that FEMA’s miscommunication, lack of timely disclosure of policy, and guidance during project formulation are at issue.  The Applicant is not arguing the Regional Administrator’s application of Federal policy and understands the logic of proportional equity.  IHSEMD does not support the Applicant’s appeal.

Discussion

1) Proportionate Equity

The temporary gymnasium was built to satisfy a need for the school to provide temporary facilities to students while permanent construction was being completed to the damaged high school.  FEMA Policy 9523.3, Provision of Temporary Relocation Facilities, states that eligible temporary facilities may be leased, purchased, or constructed, and must be used to provide eligible function to the same extent and manner as it was provided prior to the disaster.  In this case, the Applicant chose to construct the facility to provide temporary access to a gymnasium for dislocated students. 

The Applicant contends that the school district’s decision to select a temporary facility, add capital improvements, and later retain title as a permanent facility was based upon the policy information and cost estimates provided by FEMA as described in the original PW and signed by the Applicant.  The Applicant argues that the original PW that stated “no salvage included” should be honored by FEMA.  FEMA reviews all PWs for eligibility based upon requirements set forth in statute, regulation and the policies of the Public Assistance Program.  In this case, FEMA’s review process identified errors in eligibility and made corrections prior to obligating PW 596.

In accordance with 44 CFR §13.31, Real Property, and FEMA Policy 9523.3, Provision of Temporary Relocation Facilities, dated July 16, 1998,  proportionate equity in the amount of $247,500 was appropriately deducted from PW 596.  No changes will be made to PW 596 regarding this deduction.

2) Insurance Apportionment

There is an additional issue associated with PW 596 regarding the application of insurance proceeds to its temporary facilities.  Under its insurance policy, the Applicant has Extra Expense coverage of $1 million to apply to such costs as temporary facilities and certain additional costs not covered under other policy provisions.  This coverage was apportioned as follows: under PW 596, $500,000 was applied to the gymnasium facility and $394,224 was applied to the temporary classroom facilities.  The remaining $105,776 was applied to PW 10552, and is not at issue here.

The Applicant has also submitted a second appeal of PW 4674, requesting costs associated with an accelerated construction timeline.  These costs are not eligible for Public Assistance funding, but they are covered under the Applicant’s $1 million Extra Expense insurance coverage.  FEMA’s Disaster Assistance Fact Sheet DAP 9580.3, Insurance Considerations for Applicants, Frequently Asked Question Number 3 sets forth the process for apportioning insurance proceeds to eligible and ineligible damage.  Pursuant to this Fact Sheet, “If the Applicant’s insurance covers eligible and ineligible damage…without specifying limits for each type of loss, the proceeds will be apportioned based on the ratio of the Applicant’s eligible to ineligible damage.”  Therefore, while it was appropriate to apply this coverage to the temporary facilities, a portion of it can be applied to the costs requested under PW 4674 that are ineligible for Public Assistance funding.

As this applies here, the costs in question are $645,563 for costs associated with the accelerated construction timeline that are ineligible for Public Assistance funding.  Eligible costs, excluding Direct Administrative Costs (DAC) associated with this coverage, are those for the temporary facilities captured in PW 596 ($1,534,987) and PW 10552 ($106,494), totaling $1,641,481.  Total costs that fall under the Extra Expense insurance are $2,287,044 ($645,563 ineligible + $1,641,481 eligible).  The ratio of ineligible to eligible cost is therefore 28 percent in ineligible costs and 72 percent in eligible costs.  In apportioning the Extra Expense insurance coverage of $1 million, this means that $280,000 (or 28 percent) of the insurance coverage can be applied to the $645,563 of ineligible costs requested under PW 4674, requiring FEMA to adjust $280,000 of the insurance proceeds that were applied to the temporary facilities.  Because FEMA applied insurance proceeds of $394,224 to the temporary classrooms in PW 596, FEMA will adjust PW 4674 and PW 596 to reflect that $280,000 in insurance proceeds will now be applied to PW 4674.  Effectively, FEMA will be taking $280,000 of insurance proceeds that were applied to PW 596 and allowing the Applicant to apply them to the ineligible costs requested under PW 4674.  Since these will no longer be insurance proceeds applied to the temporary classrooms in PW 596, FEMA will obligate $280,000 of Public Assistance funding to PW 596 toward the eligible classroom facilities.  This coverage will then be apportioned as follows:



PW

Total Cost

Insurance Proceeds Applied to Project

Total Eligible Funding

Instructions

596

$1,534,987

(excluding DAC)

 

 

$500,000 to gym

$114,224 to classroom facilities

$681,568

 

($1,543,292-$614,224

insurance proceeds &

$247,500 proportionate equity value)

 

 

  • Indicate in PW that insurance apportionment is being adjusted so that only $114,224 of insurance proceeds are applied to classrooms
  • Obligate $280,000 PA funding toward classrooms

10552

$106,494 (excluding DAC)

$105,776

$2,030

No change to PW

4674

$20,280,812 (total cost, most of which is covered by other funding)

 

$655,375 (costs at issue: $645,563 accelerated construction costs + $9,812 DAC)

$280,000

$9,812

  • Indicate in PW that Applicant is allowed to apply $280,000 of Extra Expense coverage to this PW
  • No change in actual funding; only DAC obligated

The second appeal determinations for PW 596 and PW 4674 are being issued concurrently to address the correct apportionment of insurance, and instructions for each PW.

Conclusion

I have reviewed the information submitted with the appeal and have determined that the Regional Administrator’s decision in the first appeal is consistent with the Public Assistance regulations and policy.  Accordingly, I am denying the second appeal of PW 596 regarding the deduction of FEMA’s proportionate equity.  However, as explained in the above analysis, FEMA will obligate $280,000 to PW 596 to adjust for the insurance proceeds that will now be applied to PW 4674.  I am requesting that the Regional Administrator take appropriate action to implement this determination.
 

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