Private Nonprofit

Appeal Brief

Appeal Letter

Appeal Analysis

Background

On August 29, 2005, high winds and heavy rains from Hurricane Katrina damaged the Community Church Unitarian Universalist building (facility).  Levee breaches caused flooding to the facility, which remained submerged in eight (8) feet of water for several weeks.  The Community Church Unitarian Universalist’s (Applicant) facility was a 4,161 square foot building used for church services and community outreach programs. 

Due to the substantial damage sustained at the facility, the Applicant contracted with a demolition service on July 29, 2008, for an estimated cost of $21,000.00, and the work was completed on August 22, 2008.  On October 21, 2008, the City of New Orleans Department of Safety and Permits issued a letter stating that, because the building was substantially damaged, the cost to repair the building would constitute a substantial improvement.  The new building required an elevation of three (3) feet to comply with the current ordinance.  The Applicant paid the demolition company $21,000.00 for demolition, which insurance reimbursed. 

Between November 16, 2010, and October 7, 2011, FEMA accepted requests for Public Assistance (PA) from Private Nonprofits (PNPs).  FEMA prepared Project Worksheet (PW) 20207, finding the facility eligible for replacement because the cost of repair ($289,358.03) was more than 50 percent of the cost of replacement ($398,610.21), i.e. 72.59 percent.[1]  FEMA determined that the facility was eligible for PA because it was established for religious and charitable purposes.  Since the Applicant had already completed construction of the new facility, FEMA determined that elective upgrades, that increased the cost, were not eligible for PA funding.  The Applicant’s replacement building was 4,459 square feet, at a cost of $1,041,426.20.  According to the PW, the Applicant received a hazard insurance settlement, a flood insurance settlement, a Bush-Clinton Katrina Fund grant, and was approved for a Small Business Administration (SBA) loan.[2]

Eligible Costs

Of the $1,041,426.20 actual replacement costs, $150,415.38[3] was for architectural and engineering (A&E) contract costs.  The non A&E portion—$891,010.82[4]—included the construction contract, demolition, site work, and permits—collectively known as base construction costs.  FEMA relied on RS Means Costworks[5] (RS Means) to determine that the reasonable base construction cost estimate was $825,891.00.  FEMA then reduced the actual non A&E costs—$891,010.82—by $171,970.61[6] in ineligible elective upgrades,[7] resulting in an eligible actual base construction cost of $719,040.21.  Because this amount was lower than the RS Means estimate, FEMA determined that the actual construction cost of $719,040.21 was reasonable.

FEMA then used the Cost Estimating Format (CEF)[8] to factor in general conditions, general contractors’ overhead, project management, and A&E fees to determine project cost reasonableness.  Based on the percentages provided in the Public Assistance Guide, FEMA estimated reasonable A&E costs to be $88,765.00.  As the actual A&E costs—$150,415.38[9]—exceeded this estimate, FEMA capped the A&E costs at $88,765.00.  In addition, FEMA found $11,096.84 eligible for contents replacement.  Thus, based on the above, FEMA determined that the total eligible costs amounted to $818,902.05.[10]

Subsequently, FEMA determined that only 62 percent of the non-common area space was used for eligible community center activities.  Based on that percentage usage, FEMA calculated the total eligible reconstruction and contents replacement costs to be $507,719.27.[11]  However, after deductions for the approved SBA loan, proceeds from the Bush-Clinton Katrina fund, and insurance, FEMA awarded zero dollars.[12]  The insurance deduction, though, was erroneously calculated at 90 percent rather than 62 percent.  FEMA subsequently adjusted the insurance portion for 62 percent and obligated a total amount of $30,418.00.[13] 

First Appeal

In its first appeal, dated July 15, 2013, the Applicant disputed the percentage usage amount, arguing that FEMA improperly denied the activities of the League of Women Voters as political in nature, thus reducing the percentage use.  The Applicant also disagreed with FEMA’s denial of a portion of A&E expenses which FEMA deemed unreasonable as they enhanced the building with “non-typical features,” arguing that while the building was built to be “green,” the “effort utilized a very small percentage of architectural and design time.”  According to the Applicant, the majority of costs that FEMA found unreasonable were incurred because the Applicant’s plans to repair rather than rebuild were negated when the New Orleans flood maps were redrawn in 2008, requiring the building to be elevated.  The first appeal requested an additional $257,641.68. 

The State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) transmitted the Applicant’s first appeal on September 15, 2013, arguing that the Applicant should be reimbursed $150,415.38 in actual A&E costs because this amount took into account A&E expenses the Applicant incurred in its initial efforts to repair the facility.  The Grantee contended that FEMA’s usage calculation was in error because FEMA based it on the number of church members attending the activities in relation to the number of members of the public, finding ineligible those events attended mostly by church members.  Per the Grantee’s calculation, this percentage was about 90 percent, for a total reimbursable amount of $256,435.06.  The Grantee also sought reimbursement for demolition costs of $21,000.00, costs of grass and sod to stabilize slopes and minimize erosion of $346.62, and $171,970.61 for elective construction modifications as the least costly alternative.  In total, the Grantee requested $600,167.67. 

On November 19, 2013, FEMA sent a request for information (RFI) to the Applicant.  Through it, FEMA asked for the landscape site plan, an invoice for $5,229.39 showing assistance with increased cost of compliance (ICC) funding and all information regarding this funding source, and a detailed and itemized breakdown of the construction contract which could be used to identify potential eligible costs for specific upgrades. 

In its response, transmitted by the Grantee on December 18, 2013, the Applicant submitted documentation showing that demolition costs were paid through the ICC insurance.  The submission also included the construction contract and cost breakdown.  The Applicant also provided a landscape site plan showing that only 40 percent of the total landscaping required soil retention measures, including sod replacement.

The Region VI Regional Administrator (RA) partially granted the Applicant’s first appeal, recalculating the usage percentage from 62 percent to 62.92 percent, resulting in an additional obligation in the amount of $7,534.00.  The RA determined the following: (1) demolition costs were ineligible for public assistance funding because the Applicant received reimbursement through insurance for the demolition as ICC funding; (2) an additional $12,648.00 in A&E costs was reasonable; and (3) $5,007.00 in sod replacement was eligible for funding, based on the landscape site plan showing that only 40 percent of the area required stabilizing.  Based on the RA’s first appeal decision, FEMA obligated an additional $25,189.00. 

Second Appeal

On August 8, 2014, the Applicant submitted its second appeal to the Grantee, alleging that potluck dinners were not religious in nature and, as a result, FEMA should revise the time/space usage percentage to 80.83 percent.  The Grantee presented two issues: (1) the time/space usage should be 80.83 percent as stated by the Applicant, and (2) FEMA should reimburse the Applicant for sod replacement in the amount of $7,511.00 because the Applicant needed to stabilize 100 percent of the area rather than the 40 percent area that FEMA funded.  Region VI forwarded to FEMA Headquarters the Applicant’s Request for Public Assistance package, which included the charter, bylaws, articles of incorporation, insurance documents, and letter from the Internal Revenue Service (IRS) stating the Applicant’s tax exempt status (IRS tax exemption letter).

Discussion

Pursuant to 44 C.F.R. § 206.222(b) and § 206.223(a)(3), to be eligible for PA funding, a PNP applicant must own or operate an eligible PNP facility, and it must have legal responsibility for disaster-related damages.[14]  Eligible PNP facilities are defined in 44 C.F.R. § 206.221(e) and include facilities providing essential governmental type services such as community centers.[15]  Community center eligibility requirements are clarified in Response and Recovery Directorate Policy (RRDP) 9521.1, Community Center Eligibility, which defines an eligible community center as “[a] facility open to the general public, established and primarily used as a gathering place for a variety of social, educational enrichment, and community service activities.”[16]  The policy further provides that “[f]acilities established or primarily used for religious, political, athletic, recreational, vocational or academic training, the arts, conference, or similar activities are not eligible PNP community centers.”[17]  Under the policy, a “facility is a building specifically designated as a community center.”[18]  The same policy defines the term established as follows:

“Established…” refers to the purpose for which a facility was instituted.  This should be determined by reviewing the organization’s (pre-disaster) charter, bylaws, and amendments or other well-documented evidence of longstanding, routine (day-to-day) use of such facilities as a community center.  A facility offering a wide range of activities for only a brief period or at irregular intervals would not be eligible.  As a general rule, a facility that was not founded as a community center would not be an eligible community center.[19]

The policy also states:

Materials such as the organizational charter, articles of incorporation, minutes of board meetings, activity logs, and other documents that existed prior to the disaster and evidence of the facility activities and uses prior to the disaster should be obtained and reviewed to ensure that a facility is not being identified as a community center for the first time only after the disaster.…  Another approach is to ask the question: “If all community activities were eliminated, would the facility still function?”  If, stripped of all community activities, a facility would be a performing arts center, church, or gymnasium; it is more likely to have been established for that purpose, not as a community center.  Conversely, if ending all community activities would result in an empty, unused building, the facility is more likely to have been established as a community center.[20]

Consistent with RRDP 9521.1, FEMA has found ineligible, as community centers, facilities established for religious purposes, regardless of other secular activities held at the facility.[21]  Likewise, facilities not specifically established and used as community centers are ineligible community centers.[22]

Here, FEMA reviewed a number of legal documents, including the articles of incorporation, bylaws, charter, IRS tax exemption letter, and other available information, to assess whether the Applicant’s facility was eligible as a PNP community center.  The facility appears to have been established for religious purposes, and was never identified or designated as a community center prior to the disaster.  To make this assessment, FEMA first reviewed the Applicant’s articles of incorporation, dated March 13, 1961, which states that Community Church Unitarian Universalist was organized for the purposes of, among others, “practic[ing] the principles of the Unitarian Universalist faith, search[ing] for the high values in life and religion, [and] foster[ing] individual freedom of belief.”[23]

Next, FEMA considered the Applicant’s bylaws, which refer to the facility as a religious institution, stating the purpose as to “form a community to advance a free faith which affirms a free and responsible search for truth and meaning.”[24]  Per the bylaws, the church is affiliated with continental and regional religious bodies which adhere to these principles.[25]  Admission to the organization mandates commitment to the purpose of the church, with persons between the ages of thirteen and sixteen required to complete a “pre-membership religious education program provided by [the] church.”[26]  Active membership, defined by a financial contribution per calendar year, is also required.[27]

FEMA also looked at the Applicant’s IRS tax exemption letter, business filing with the Louisiana Secretary of State, and insurance policies.  The IRS letter classifies the Applicant’s organization as a church “under sections 509(a)(1) and 170(b)(1)(A)(i) of the Internal Revenue Code.”[28]  Likewise, the Louisiana Secretary of State business filing lists the organization as a “Non-profit Religious Corporation.”[29] The Applicant’s flood insurance application[30] lists the facility as “Church” under the building and use section and the insurance company refers to the facility as a church.[31] 

Based on the purposes set forth in the articles of incorporation and bylaws, as well as the IRS’s classification of the facility as a church, the Louisiana Secretary of State listing of the business as a religious corporation, and the insurance documentation stating the use as a church, the facility was established for religious purposes.  It was not identified as a community center prior to the disaster. 

In addition, if all community activities were removed, i.e. the STAIR program, flash dance, Greater New Orleans Camera Club, etc., the facility would likely still function as a church for its members.[32]  Many claimed secular events, such as potluck dinners, are advertised in the church newsletter, which includes all worship and congregational related events such as Christmas services, the Sunday schedule, and “joys and sorrows.”  Removal of secular activities from the facility would likely not hinder the church’s religious operations.  Therefore, the facility was established for religious purposes and, as such, does not meet PNP facility eligibility requirements.  The facility is thus ineligible for PA funding. 

Conclusion

Community Church Unitarian Universalist was incorporated as a religious institution.  Although the facility may have been used for some community center types of activities, as evidenced by its foundational documents, it was established for religious purposes.  As such, this facility is not an eligible PNP and FEMA must deobligate all previously obligated funding associated with PW 20207 in the amount of $59,823.80.