Allowable Costs & Reasonable Costs, Increased Operating Costs, Legal Responsibility

Appeal Brief

Summary Paragraph 

From January 20, 2020, through May 11, 2023, the state of New Jersey was affected by the coronavirus (COVID-19) pandemic. Eva’s Village, Inc. (Applicant), a Private Nonprofit (PNP) entity operates shelters, residential halfway houses, and a community kitchen, and requested Public Assistance (PA) funding for loss of revenue and increased meal and transportation costs. In a Determination Memorandum, FEMA denied all funding, finding that the Applicant’s loss of revenue was not eligible for PA, and it was not legally responsible for providing meals and transportation. In its first appeal, the Applicant states that COVID-19 caused a decrease in revenue and that it believed it had the legal responsibility to provide transportation of COVID-19 positive residents to an offsite facility and food to those quarantined residents. FEMA denied the appeal, finding that loss of revenue was not an eligible cost, and the Applicant was not eligible for direct non-congregate sheltering (NCS) cost reimbursement. The Applicant submits a second appeal, reiterating its prior arguments.

Authorities

• Stafford Act § 403(a)(3).
• 44 C.F.R. § 206.225(a); 206.223(a)(3).
• PAPPG, at 21, 41-42, 60-61.
• FP 104-009-18, at 1; FP 104-010-03, at 3; Fact Sheet, Private Nonprofit Organizations, at 2; FAQs, Non-Congregate Sheltering, at 1-2.
• DeSales Media Group Inc., FEMA-4480-DR-NY, at 1, 4; Divine Providence Inc., FEMA-4497-DR-KY, at 3; The Center for Housing Solutions, Inc., FEMA-4587-DR-OK, at 2.

Headnotes

• FEMA cannot provide PA funding for revenue lost due to an incident, such as if a hospital sustains damage that reduces pre-existing capacity.
  • The Applicant’s loss of revenue and unbudgeted increased operating expenses are not allowable costs. Rather, they are increased operating costs ineligible for PA funding. 
• For PNPs, operating costs are generally not eligible even if the services are emergency services, unless the PNP performs an emergency service at the request of and certified by the legally responsible government entity. 
  • The Applicant has not demonstrated it was legally responsible to provide meal and transportation services.

Conclusion

FEMA finds that the Applicant’s request for reimbursement of lost revenue is not eligible. Furthermore, the Applicant has not demonstrated it was legally responsible to provide emergency services. Therefore, the appeal is denied.

Appeal Letter

Appeal Analysis

Background

During the incident period of January 20, 2020, through May 11, 2023, the state of New Jersey was affected by the coronavirus (COVID-19) pandemic.[1] Eva’s Village, Inc. (Applicant), a Private Nonprofit (PNP) organization, operates shelters, residential halfway houses, and a community kitchen for homeless individuals. The state of New Jersey pays the Applicant a fee, or per diem, per resident. The Applicant’s revenue is based on the number of residents it serves. The Applicant requested Public Assistance (PA) funding in the amount of $1,348,429.19 for loss of revenue due to reduced capacity, increased meal and transportation costs, and management costs.^[2] The Applicant claimed its loss of revenue was due to: (1) temporarily relocating residents who tested positive for COVID-19 to hotels for isolation and quarantining; thus it did not receive state funding for individuals who were located offsite; (2) limiting the number of residents it could house in order to comply with social distancing requirements; and (3) an overall decline in residents during the COVID-19 pandemic, as many residents who left were not replaced. Additionally, the Applicant claimed it incurred unbudgeted, increased operating expenses because it provided meals for individuals quarantining in hotels and transported residents who tested positive for COVID-19 to hotels. Lastly, the Applicant claimed management costs for temporary help, collection of documentation, and management review. 

On March 22, 2023, FEMA issued a Determination Memorandum denying $1,348,429.19 in claimed costs, finding that: (1) loss of revenue was not an allowable cost; (2) meals and transportation costs were not eligible because the Applicant was not legally responsible for providing these services as emergency protective measures; and (3) the Applicant had not submitted documentation in support of the claimed work.

First Appeal 

The Applicant submitted an undated appeal contending that a reduction in residents to comply with COVID-19 social distancing requirements caused a decrease in operating revenue.[3] The Applicant stated that it believed it had the legal responsibility to provide food, as required by its contract with the New Jersey Division of Mental Health and Addiction Services. Additionally, the Applicant stated that, since FEMA reimbursed state and local governments for non-congregate sheltering (NCS)[4] costs, it also should receive PA funding for its NCS-related food and transportation expenses. The Applicant did not address the denied management costs. On April 19, 2023, New Jersey Division of State Police (Recipient) forwarded the Applicant’s appeal to FEMA, supporting the Applicant’s appeal. 

On August 7, 2023, the FEMA Region 2 Regional Administrator denied the Applicant’s appeal, finding that: (1) lost revenue was not an eligible cost; (2) food and transportation costs were associated with NCS, which was reimbursable only to legally responsible government entities, and the Applicant, as a PNP, was not eligible for direct NCS cost reimbursement; and (3) FEMA could not provide funding for management costs related to an ineligible project.

Second Appeal

On August 15, 2023, the Applicant submits its second appeal, reiterating prior arguments and contending that, in addition to its loss of revenue, it incurred unbudgeted increased operating expenses, which are attributable to COVID-19.[5]The Applicant acknowledges that loss of revenue is not eligible for PA, however, it states that FEMA should make an exception in this case. The Applicant explains that it lost revenue from the state because residents left its campus to quarantine, but the Applicant still provided care (i.e., meals and transportation) for those residents, which was an unbudgeted expense. The Applicant states that it understands that NCS‑related costs are directly reimbursed only to state, local, tribal, and territorial governments (SLTT) and not PNPs. However, the Applicant asserts these costs are unbudgeted increased operating expenses incurred due to the COVID-19 declaration, and as such, should be eligible for reimbursement. On October 17, 2023, the Recipient forwarded the Applicant’s appeal to FEMA, expressing its support.

Discussion

Allowable Costs & Reasonable Costs

To be eligible, costs must be directly tied to the performance of eligible work.[6] FEMA is not authorized to provide PA funding for all losses or costs resulting from the incident and cannot provide PA funding for revenue lost due to an incident, such as if a hospital sustains damage that reduces pre-existing capacity.[7]

Here, the Applicant requests $1,272,069.28 associated with loss of revenue and acknowledges that loss of revenue is not eligible for PA funding but asks that FEMA consider funding the costs as “unexpected expenses” after a federal disaster.[8] However, all costs must be directly tied to the performance of eligible work and FEMA cannot fund loss of revenue. Therefore, the costs associated with that claim are denied.

Legal Responsibility

FEMA is authorized to provide assistance for emergency protective measures to save lives and protect public health and safety.[9]In limited circumstances under the COVID-19 declarations, FEMA will consider requests for reimbursement of NCS for health and medical-related needs.^[10] To be eligible for PA funding, an item of work must be the legal responsibility of an eligible applicant.^[11] Measures to protect life, public health, and safety are generally the responsibility of the SLTT governments.^[12] Therefore, PNPs are generally not legally responsible for those services and FEMA does not provide PA funding to PNPs for the costs associated with providing those services.^[13] When a PNP provides emergency services at the request of, and certified by, the legally responsible government entity, FEMA provides PA funding through that government entity as the eligible applicant.^[14] For PNPs, operating costs are generally not eligible even if the services are emergency services, unless the PNP performs an emergency service at the request of and certified by the legally responsible government entity.^[15]

Next, the Applicant requests $12,149.00 in costs related to transporting residents who tested positive for COVID-19 to an offsite quarantine facility and providing meals at that facility. It states these are eligible increased operating costs incurred as a result of COVID-19 social-distancing and quarantine requirements or are otherwise eligible NCS costs. However, the Applicant has not demonstrated it provided the services at the request of, and certified by, the legally responsible government entity; and even if that were the case, the Applicant, as a PNP, is not eligible for direct reimbursement.[16]  

Conclusion

FEMA finds that the Applicant’s request for reimbursement of lost revenue is not eligible. Furthermore, the Applicant has not demonstrated it was legally responsible to provide emergency services. Therefore, the appeal is denied.