Temporary Facilities – Increased Operating Expenses
Appeal Brief
Appeal Letter
Appeal Analysis
Appeal Brief
| Disaster | FEMA-1763 |
| Applicant | University of Iowa |
| Appeal Type | Third |
| PA ID# | 103-03027-00 |
| PW ID# | (PW) 10455 |
| Date Signed | 2018-05-22T00:00:00 |
Conclusion: FEMA does not fund operating or maintenance costs associated with temporary facilities. Therefore, the costs associated with CAM fees are ineligible.
Summary Paragraph
From May 25 to August 13, 2008, severe storms caused the Iowa River to flood the campus of the University of Iowa (Applicant). The Applicant leased a unit (Facility) within a nearby mall (Center) while its School of Music was repaired. FEMA wrote PW 10455 to capture costs associated with leasing the Facility. Beyond base rent and operating expenses within the Facility, the Applicant’s lease (Lease) also required payment of a CAM fee. Over the 90-month course of the Lease, CAM fees totaled $81,000.32. On March 27, 2017, the State of Iowa (Grantee) submitted a closeout request for PW 10455, seeking reimbursement of the CAM fees, among other expenses. In a Determination Memorandum (Determination Memo) dated May 5, 2017, FEMA found that the CAM fees were costs associated with operating and maintaining a temporary facility, and ineligible per DAP 9523.3. FEMA sent its Determination Memo via letter and email on June 13, 2017. The Applicant acknowledged receipt of FEMA’s decision on June 14, 2017, and appealed by letter dated July 28, 2017, arguing that the CAM charges were not maintenance costs, but extra rent. The Grantee transmitted the appeal on September 26, 2017, supporting it. FEMA sent a request for information (RFI) on October 10, 2017, for documentation that the CAM fees were not costs the Applicant would have incurred prior to the disaster, and that the CAM fees did not qualify as maintenance or operating costs, or increased expenses associated with relocating to a temporary facility. By letter dated November 10, 2017, the Applicant responded, renewing its arguments, but providing no additional documents. On December 6, 2017, the Regional Administrator (RA) found that the CAM fees were ineligible maintenance and operating expenses, and that the Applicant would have incurred many of the same costs, absent the disaster. By letter dated February 2, 2018, the Applicant submitted a second appeal, which the Grantee transmitted on April 3, 2018.
Authorities and Second Appeals
- Stafford Act § 403
- 2 C.F.R. Part 220, Appx. A (2008)
- DAP 9523.3, at 3 – 5 (1998)
- PA Guide, at 38 – 39, 48, 54 – 55
- PAPPG, at 27 – 29
- Middleburgh Cent. Sch. Dist., FEMA-4020-DR-NY, at 4
- Univ. of Iowa, PW 5246, FEMA-1763-DR-IA, at 1
Headnotes
- Disaster Assistance Policy 9523.3 provides that FEMA will not cover maintenance, utilities, or operational costs associated with the provision of temporary facilities, nor will it provide funding to cover the difference if those costs should increase as a result of the disaster.
- The CAM fees cover the Applicant’s prorate share of the maintenance and operation costs for the common areas of the Center. The CAM fees are therefore not eligible for reimbursement.
- The PA Guide states that FEMA generally does not cover cover maintenance, utilities, or operational costs associated with the provision of temporary facilities, outside of certain narrow exceptions.
- The narrow exceptions do not apply here; the CAM fees are expressly for the maintenance and operation of the common areas of the Center. Therefore, the CAM fees are ineligible.
Appeal Letter
Mark Schouten
Director
Iowa Department of Homeland Security and
Emergency Management
7900 Hickman Road, Suite 500
Windsor Heights, IA 50324-4402
Re: Second Appeal – University of Iowa, PA ID: 103-03027-00, FEMA-1763-DR-IA, Project Worksheet (PW) 10455 – Temporary Facilities – Increased Operating Expenses
Dear Mr. Schouten:
This is in response to a letter from your office dated April 3, 2018, which transmitted the referenced second appeal on behalf of the University of Iowa (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s denial of $81,000.32 in Common Area Maintenance (CAM) charges associated with its lease of Suite 167 in the Old Capitol Town Center (Facility).
As explained in the enclosed analysis, I have determined that the CAM charges connected with the Applicant’s rental of the Facility are ineligible for funding. FEMA does not fund maintanence or operating costs for temporary facilities, nor will it fund the difference if those costs increase. Accordingly, I am denying this appeal.
Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
Sincerely,
Jonathan Hoyes
Director
Public Assistance Division
Enclosure
cc: Paul Taylor
Regional Administrator
FEMA Region VII
Appeal Analysis
Background
Between May 25 and August 13, 2008, major storms caused the Iowa River to flood the campus of the University of Iowa (Applicant), resulting in severe infrastructure damage to its School of Music’s Hancher-Voxman-Clapp facilities. The damage was so severe that it rendered the buildings unusable.[1] The Applicant leased a temporary facility to accommodate its student population while repairs of the permanent buildings were ongoing. FEMA wrote Project Worksheet (PW) 10455 to document costs associated with the leasing and buildout of a temporary facility for recital and concert space for the Applicant’s School of Music. The temporary facility (Facility) was located in the Old Capitol Towne Center (Center), a shopping mall.
The Applicant entered into a five year lease (Lease) with OC Group, LC (Landlord) for rental of the Facility.[2] The Facility consisted of 3,600 square feet (SF) of space on the first floor of the Center, and the Lease provided that the Applicant was to pay “$5,100 per month base rental, which is $61,200 annually ($17.00 per square foot) [and] also pay for operating expenses including taxes, insurance, utilities and maintenance.”[3] The Lease was renewable for up to six years in addition to the original term, in two-year increments. As an additional cost in the “Utilities and Services” section of the Lease,[4] the Applicant was required to pay a Common Area Maintenance (CAM) fee of $3.00/SF per year for the first year, and afterwards the Landlord was to bill common maintenance expenses back to all tenants on the basis of each tenant’s prorated share.[5] The CAM fee was to cover the Applicant’s prorated share of “all common maintenance… expenses,” including trash disposal.[6] The Landlord described the CAM fee as covering “utilities, common area elevators and escalators, snow removal, maintenance and cleaning of common areas including food court/seating areas, landscaping, snow removal, 3rd party security services, trash removal, building insurance, and several other expenses.”[7]
The Applicant exercised its option to extend the Lease, with FEMA’s approval, until October 31, 2016. On March 27, 2017, the State of Iowa’s Homeland Security and Emergency Management Division (HSEMD) (Grantee) submitted a large project closeout request for PW 10455.[8] The request recommended “a final approved cost of $1,393,066.20,” including a recommendation for approval of the Applicant’s claimed contract costs of $1,387,658.32.[9] Contracts with the Center accounted for $1,233,998.86 of the total amount.[10]
FEMA wrote PW 10455 Version 4 on May 25, 2017, approving a total project obligation of $1,312,065.88, including $13,005.40 in cost overruns. FEMA also prepared a Determination Memorandum (Determination Memo), explaining why it was denying the Applicant’s request for reimbursement of CAM fees totaling $81,000.32 .[11] In making its determination, FEMA relied on FEMA Disaster Assistance Policy (DAP) 9523.3,[12] which disallows reimbursement for utilities (power, water, heat, etc.), maintenance, and operating costs associated with the provision of temporary facilities. DAP 9523.3 also bars reimbursement for any differential between such costs and similar costs that an applicant would have incurred but for the disaster. FEMA reasoned that, despite CAM charges being common in commercial leases, they were fees related to the maintenance of a temporary facility,[13] and were therefore ineligible for reimbursement.
FEMA prepared and signed the Closeout Letter and Final Inspection Report (FIR) on June 5, 2017, which included the Determination Memo. FEMA transmitted its Determination Memo by email and certified mail, on June 13, 2017.
First Appeal
The Applicant appealed FEMA’s determination that the CAM charges were ineligible for Public Assistance (PA) funding in a letter to the Grantee dated July 28, 2017. The Applicant argued that the Determination Memo incorrectly concluded that the CAM charges under the Lease “are similar to operating costs rather than a cost to rent the property.”[14] The Applicant asked FEMA to draw a distinction between operating costs and CAM charges, because “[t]he CAM charges are fixed costs, similar to rent and taxes, fixed from year to year, relatively stable and not typical operating costs, such as water, electricity, repairs and maintenance, which vary monthly based upon use.”[15] In addition, the Applicant argued that it was not claiming any such operating or maintenance costs in relation to its specifically-leased space, and noted in passing that FEMA reimbursed nearly identical CAM charges in a separate PW for the temporary relocation of the Applicant’s bookstore and tech/computer store to new premises within the Center.[16]
With its appeal, the Applicant included a letter from the General Manager of the Center, which described CAM charges as “more akin to additional rent in that they cover Landlord’s costs of owning a mixed building, rather than maintenance costs attributable to an individual leased unit.”[17] The letter further stated that “CAM charges paid by tenants are exclusively applied to common area maintenance, not maintenance within leased spaces” and that “[t]enants do not have the option to opt out of CAM charges or self-perform.”[18] However, the General Manager also gave a detailed description of the costs covered by the CAM fees.[19] The Grantee forwarded the Applicant’s appeal by correspondence dated September 26, 2017, supporting the appeal and asserting that the CAM charges in dispute were extra rental fees, which the Landlord charged to cover the provision of common area space to tenants.[20]
On October 10, 2017, FEMA sent a Final Request for Information (RFI) to the Applicant for documentation of whether “certain elements of the CAM charges” were “expenses the Applicant incurred prior to the flood.”[21] The Final RFI also sought documentation concerning whether certain elements of the CAM charges were “maintenance and operating expenses or increased expenses associated with the requirement to relocate.”[22]
The Applicant responded to the Final RFI on November 10, 2017, reiterating its argument that although the CAM charges were referenced as common area maintenance fees in the Lease, they actually amounted to additional rent.[23] The Applicant argued that it would not have incurred the CAM charges in the absence of the flood, because the CAM fees were not maintenance costs it incurred specifically for the Facility.[24] In the alternative, it asked FEMA to apply its policy on equipment maintenance costs, which allows reimbursement for disaster-related maintenance, to its rental of real property.[25] The Applicant did not provide any additional documents along with the RFI Response.
On December 6, 2017, the FEMA Region VII Regional Administrator (RA) issued the first appeal decision, finding that the “CAM charges constitute normal maintenance and operating expenses.”[26] In addition, the RA determined that absent the flood, the Applicant would have incurred many of the costs covered by the CAM charges, such as security, snow removal, landscaping, building insurance, utilities, and trash removal.[27] Accordingly, the RA denied the first appeal.
Second Appeal
Via email on February 2, 2018, the Applicant timely filed its second appeal with the Grantee, again arguing that the CAM costs are not costs it incurred to maintain and operate the recital space,[28] and are more properly classified as additional rental costs. The Applicant expressly incorporates the arguments it made in its first appeal and Final RFI response. The Applicant claims that the CAM charges were unavoidable, and also asserts that it paid its own maintenance and operation costs for the space it rented via separate bills. The Applicant argues that, unlike the operating and maintenance costs within its separately leased space, which increased or decreased depending on the Applicant’s use of the space, the CAM charges were “fixed costs similar to rent, fixed from year to year, and typically stable.”[29] The Applicant asks FEMA to distinguish CAM fees from operating and maintenance costs, because while operating and maintenance costs vary depending on usage, the CAM fees were fixed costs. The Applicant again argues that it would not have incurred similar costs if it had remained in its original facility, and claims that its use of common area space was de minimis compared to the overall footprint of the Center.
The Grantee timely transmitted the Applicant’s second appeal to FEMA on April 3, 2018. The Grantee argues in its recommendation letter that the CAM charges were tied to the rental of the Applicant’s temporary facility,[30] which was the only viable option for the needed purposes. The Grantee then listed several costs associated with the CAM fees that the Applicant would not have incurred in the absence of the disaster, such as the food court, escalators and elevators to the upper floor, and wide hallways with social areas, along with security and trash removal for common area spaces. The Grantee requests that FEMA reconsider the denial of CAM charges in the amount of $81,000.32, as the Grantee believes that DAP 9523.3 does not apply to costs related to common areas of a temporary facility.
Discussion
FEMA may reimburse “temporary facilities for schools and other essential community services.”[31] However, DAP 9523.3 makes clear that “FEMA will not fund utilities (power, water, heat, etc.), maintenance, or operating costs, nor will FEMA fund the differential should these costs increase.”[32] On the other hand, rent is usually an allowable expense for temporary facilities, as are certain capital expenditures.[33]
Despite the blanket prohibition of DAP 9523.3, the Applicant challenges FEMA’s denial of $81,000.32.[34] The Applicant does not dispute that operational and maintenance costs are generally disallowed under DAP 9523.3.[35] Its arguments turn on how FEMA defines “utilities, operating and maintenance costs.” The Applicant and the Grantee both view eligible rental costs as costs that are fixed, versus ineligible operating costs, which vary. Therefore, they argue the CAM fees are rental payments for access to the common areas of the Center.[36] Therefore, if FEMA considers fixed costs to be “rent,” as the Applicant and the Grantee urge, the CAM charges would be eligible for reimbursement.
Neither the Lease nor the terms of DAP 9523.3 allow FEMA to follow this interpretation. Contrary to the the Applicant’s assertion that the CAM fees are “fixed from year to year,”[37] the Lease states that all CAM expenses “shall be paid by Landlord and billed back to the Tenant each month on the prorate share of the space based on actual expenses.”[38] Even if, as the Applicant insists, the CAM charges were fixed, its argument would still fail. DAP 9523.3 does not make an exception for “fixed” maintenance and operations costs,[39] and the Lease defines the CAM fees as covering the Landlord’s common maintenance expenses. The determining factor as to whether a given cost for a temporary facility is eligible for funding under DAP 9523.3 is the nature of the cost.[40]
The Applicant also characterizes the CAM fees as rent for the common areas; however, the Lease provides that the base rent is for “3,600 square feet of space… with the improvements thereon and all rights, easements and appurtenances thereto belonging.”[41] The Lease does not require the Applicant to pay additional rent; it requires the Applicant to pay its prorated share of the Center’s common-area maintenance costs. Furthermore, the CAM charges are not defined in the “Rent” section of the Lease; the Lease defines them in its “Utilities and Services” paragraph. The fact that the Applicant could not opt out of the CAM fees is immaterial, in light of the fees’ express purpose and definition. The Applicant’s rental payments therefore cover its access to common area space, and the CAM charges cover the Applicant’s share of the utilites, maintenance, and operation of that common area space.
The Final RFI sought documentation as to whether any of the CAM charges fell outside the scope of expenses the Applicant would have incurred in the absence of the disaster,[42] and as to how the CAM fees were not maintenance and operating expenses of a mixed-use building. The Applicant did not provide any such documentation. Neither the Applicant nor the Grantee has pointed to any documentation in the record that would refute the RA’s determination that the CAM charges “clearly include costs the Applicant would have incurred had it stayed in the original location including security, snow removal, landscaping, building insurance, utilities and trash removal.”[43] Nor have they provided an explanation as to how any of the various expenses covered by the CAM fees fall outside the prohibited expenses as provided in DAP 9523.3. The RA appropriately denied costs that the Lease itself calls “maintenance” fees for the common areas of the Center, and that the Landlord describes as being for “utilities… maintenance and cleaning of common areas.”[44]
The Applicant’s other arguments likewise do not support eligibility of the costs. Although FEMA allows reimbursement of equipment maintenance costs, the Lease is not for equipment, but rather for real property.[45] Equipment and facilities are entirely distinct, and subject to different considerations. The Applicant’s other supplemental argument, that its 35 linear SF of frontage space was de minimus in relation to the Center as a whole, ignores that it paid CAM charges in proportion to its total leased space. Under the plain language of both DAP 9523.3 and the PA Guide, the CAM fees are operating and maintenance costs of a temporary facility, and therefore ineligible.[46]
Conclusion
The CAM charges are expressly for maintenance and operation of the common areas of a temporary facility. Accordingly, the CAM charges are ineligible for reimbursement, and the Applicant’s appeal is denied.
[1] Project Worksheet 10455, Univ. of Iowa, Version 0 (Aug. 9, 2010)
[2] See Lease Agreement between the Bd. of Regents, State of Iowa, and OC Group, LC, at 1 (Apr. 28, 2009) [hereinafter Lease]; Lease at 10 (showing location of Suite 167 within the Center).
[3]Id. at 1.
[4] Id. at 3 § 7.
[5] There is no indication in the record that the Landlord ever charged anything but the $3.00/SF/year rate. The Lease ran for 90 months, and the monthly share of a CAM charge of $3.00/SF/year is $900.00. Total CAM charges at a fixed $3.00/SF/year rate should thus be $81,000.00 for a 90-month lease. It is unclear as to where the additional $0.32 originates.
[6] Lease, at 3 § 7(g) – (h).
[7] Letter from Gen. Mgr., Old Capitol Town Ctr., to Bus. Mgr., Univ. of Iowa, at 1 (undated) [hereinafter Letter from Landlord].
[8] Letter from Alt. Gov.’s Authorized Rep., HSEMD, and supporting documentation (Mar. 27, 2017) [hereinafter Closeout Request].
[9] Id. at 5 (HSMED Closeout Narrative, at 1).
[10] Id. at 7 (HSEMD Closeout Narrative, at 5).
[11] Memorandum from Closeout Operations Mgr., Recovery Div., FEMA Region VII (May 5, 2017) [hereinafter Determination Memo].
[12] DAP 9523.3, Provision of Temporary Relocation Facilities, at 3 (July 16, 1998). In the Determination Memo, FEMA cites the version of DAP 9523.3 dated December 14, 2010; in the First Appeal Decision, FEMA cites the original version, dated July 16, 1998. Although the two versions are identical as to the relevant provision, the date of the disaster makes the July 16, 1998 version applicable to this appeal.
[13] Determination Memo, at 3 (citing DAP 9523.3, at 3).
[14] Letter from Dir., Fin. Mgmt. and Budget, Univ. of Iowa, to Pub. Assistance Bureau Chief, HSEMD, at 1 (July 28, 2007) [hereinafter Applicant First Appeal].
[15] Id.
[16] Id. See also PW 10409, Iowa Memorial Union Temp. Book Store, Version 4, at 7 (Sept. 24, 2015).
[17] Letter from Landlord, at 1.
[18] Id.
[19] Id.
[20] Letter from Alt. Gov.’s Authorized Rep., HSEMD, to Acting Reg’l Adm’r, FEMA Region VII, at 1 (Sept. 26, 2017) [hereinafter Grantee First Appeal Letter].
[21] Letter from Dir., Recovery Div., FEMA Region VII, to Dir., HSEMD, and Dir., Univ. of Iowa, at 1 (Oct. 10, 2017) [hereinafter Final RFI] (quoting Letter from Landlord explaining CAM charges).
[22] Id.
[23] Letter from Dir., Fin. Mgmt. and Budget, Univ. of Iowa, to Representative, Rec. Div., FEMA Region VII, at 1 (Nov. 10, 2017) [hereinafter RFI Response]. In the RFI Response, the Applicant refers to the Public Assistance Program and Policy Guide, FP 104-009-2, at 27 – 29 (Jan. 1, 2016) [hereinafter PAPPG], but the PAPPG was not in effect at the time of the disaster.
[24] Id. at 2.
[25] RFI Response, at 2 (citing Public Assistance Guide, FEMA 322, at 48 (June 2007) [hereinafter PA Guide]).
[26] FEMA First Appeal Analysis, Univ. of Iowa, FEMA-1763-DR-IA, at 2 (Dec. 6, 2017) [hereinafter First Appeal Decision].
[27] Id. at 4.
[28] Letter from Dir., Fin. Mgmt. and Budget, Univ. of Iowa, to HSEMD, at 1 (Feb. 2, 2018) [hereinafter Applicant Second Appeal].
[29] Id. As mentioned, the CAM charges do appear to have run at $900.00/month for the 90-month course of the Lease, notwithstanding the provision of § 7(h) that, after the first year, the Landlord was to bill CAM charges to the Applicant based on its prorate share of actual expenses.
[30] Letter from Gov.’s Authorized Rep., HSEMD, at 3 (April 3, 2018) [hereinafter Grantee Second Appeal].
[31] Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 403(3)(D), 42 U.S.C. § 5170b(a)(3)(D) (2006) [hereinafter Stafford Act].
[32] DAP 9523.3, at 3.
[33] See DAP 9523.3, at 4; see also PA Guide at 38, “Temporary Relocation” (reasonable alterations at temporary facility eligible if needed to perform original facility’s function).
[34] Applicant Second Appeal, at 1.
[35] Applicant First Appeal, at 1 (DAP 9523.3 “is reasonable because utilities, maintenance work and operating costs would have been paid by the applicant if the facility had not been damaged in the disaster and the applicant continued to use the space in the old School of Music.”).
[36] But compare Title 2, Code of Federal Regulations (C.F.R.) Part 200, Appx. A § (F)(4)(a) (2008) (providing examples of of operation and maintenance expenses, including: janitorial and utility services; care of grounds; security; and maintenance and operation of buildings and other facilities) with Letter from Landlord (listing similar expenses covered by the CAM charges).
[37] Applicant Second Appeal, at 1.
[38] Lease, at 3 (emphasis added).
[39] See, e.g., PA Guide, at 55 (finance charges such as interest on loans and bond costs ineligible); Second Appeal Analysis, FEMA-1763-DR-IA, PA ID 103-03027-00, Univ. of Iowa, PW 5246, at 1 (Aug. 12, 2016) (insurance premiums for temporary facilities ineligible).
[40] See, e.g., Second Appeal Analysis, FEMA-4020-DR-NY, PA ID 095-03061-00, Middleburgh Central School District, PW 9264, at 4 (Aug., 4, 2017) (increased transportation costs for bussing students to temporary facilities ineligible).
[41] Lease, at 2 (emphasis added).
[42] Final RFI, at 1.
[43] First Appeal Decision, at 4.
[44] See Letter from Landlord.
[45] RFI Response, at 2 (citing PA Guide, at 48).
[46] The Applicant rightly pointed out that, in another worksheet under FEMA-1763-DR-IA, FEMA approved CAM charges associated with its procurement of separate temporary facilities at the Center. However, the RA correctly noted that that fact alone does not resolve the issue. See First Appeal Decision, at 4, “Prior Allowances.”
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