FEB 24 2012
Virginia Department of Emergency Management
10501 Trade Court
Richmond, Virginia 23236
RE: Second Appeal- Gloucester County, Elevation and Acquisition Project. FEMA-DR-1491-VA, Project Number 0062
Dear Mr. Cline:
This letter is in response to your letter dated June 1, 2011, which transmitted the subject appeal on behalf of Gloucester County. Gloucester County appealed the Region III Mitigation Division Director's decision to de-obligate $566,638 (Federal share is $424,978) in ineligible costs related to the mitigation project.
On April 12, 2006, FEMA approved Gloucester County's request for $1,378,245 to elevate nineteen (19) structures and to acquire five (5) properties. FEMA subsequently approved Gloucester County's request to change the scope of work for the project and increased eligible project costs by $650,000. The approved total project cost was $2,028,245 ($1,521,184 Federal share).
On June 29, 2010, the Virginia Department of Emergency Management (VDEM) submitted a request to close out the project to FEMA. Gloucester County spent $1,932,591.60 on the project. In a letter dated September 1,2010, FEMA requested additional documentation from VDEM in order to process the closeout request. Specifically, FEMA requested proof of National Flood Insurance Program (NFIP) insurance coverage for six properties; documentation that homeowners paid for break-away walls for their respective structures; and documentation that the Acknowledgement of Conditions agreements had been recorded with the deeds. FEMA also stated that it had determined that costs associated with exterior brick work, new decks, electrical upgrades at several properties were ineligible. In addition, FEMA determined that the Applicant had requested excessive project
management costs. VDEM submitted additional documentation on October 13, 2010. In a letter dated November 8, 2010, FEMA informed VDEM that (1) nine (9) property owners had purchased less flood insurance for their properties than required by program guidance; (2) $115,811 in costs related to changes in the scopes of work for thirteen (13) properties was ineligible; and (3) $70,271 in project management costs was ineligible because the Applicant elevated and acquired fewer homes than stated in the original scope of work. FEMA stated that it would de-obligate
In a letter dated February 9, 2011, VDEM appealed the eligibility determinations on behalf of Gloucester County. The first appeal included proof of flood insurance and justification for disallowed costs including medical documentation for reasonable accommodations. FEMA reviewed the documentation submitted with the appeal and determined that four (4) property owners had purchased an insufficient amount of flood insurance coverage for the elevated structures. Therefore, the cost to elevate the four (4) structures ($484,600) was ineligible. FEMA also determined that Gloucester County made adjustments to the scopes of work on eleven (11) properties without obtaining FEMA' s approval as required by program guidance. The cost associated with the adjustments was $87,575.26. In addition, FEMA determined that $61,521.18 in management costs was ineligible because the requested amount was not commensurate with the final scope of work. In a letter dated April 6, 2011, the FEMA Region III Mitigation Division Director denied the first appeal and informed VDEM that FEMA would de-obligate $566,638.
Gloucester County submitted a second appeal to VDEM on June 1, 2011, asserting that FEMA's interpretation of NFIP insurance coverage, ineligible costs, and project management were in error. On June 23, 2011, FEMA Region III transmitted the appeal to FEMA headquarters for review. The final project includes the elevation of eighteen (18) structures and the acquisition of one (1) property. The second level appeal involves twelve (12) of the elevated properties. The amount in dispute is $566,638 ($424,978 federal share).
FEMA Mitigation Memorandum - Conditions for a Property Mitigated in a SFHA with FEMA Grant Funds dated March 20, 2006 states that " ... for mitigation projects that involves altering existing structures on individual properties that are sited within SFHA: When the project is implemented, all structures that will not be demolished or relocated out of the SFHA must be covered by flood insurance to an amount at least equal to the project cost or the maximum limit of coverage made available with respect to the particular property, whichever is less ... " VDEM asked FEMA to clarify the definition of "maximum limit of coverage made available with respect to the particular property." In a letter dated February 22, 2011, the FEMA Region III Mitigation Division Director stated that the phrase can be defined the "Replacement Cost Value (RCV), which is the cost to replace property with the same kind of material and workmanship without deduction for depreciation." VDEM provided a chart showing the project cost, replacement cost and the amount of flood insurance placed on each property. This information shows that the amount of flood insurance on the four (4) properties is consistent with the Region's guidance. (See enclosure)
The questions that need to be addressed here are: (1) do program guidelines require applicants to obtain FEMA's approval before changing the scope of a project and (2) were the minor changes to components of the elevation projects that the applicant implemented considered changes to the approved scopes of work? FEMA guidance on page 13-12 of the Hazard Mitigation Desk Reference states that "States must obtain prior approval from FEMA before implementing scope changes."
The Desk Reference defines scope changes as "Revision of the objectives of an approved project (regardless of budget implications). Examples: The number of houses in a retrofit or acquisition project; the size of a replacement culvert; or the expanded or reduced project area. Change in the period of availability of funds; or change in key personnel if specified in the application. For construction projects, the grantee must "obtain prior written approval for any budget revision which would result in a need for additional funds.
(44 CFR 13.30)"
The modifications that Gloucester County made to elevation structures are listed in Enclosure 1. These modifications did not change the objective of the project, which was to elevate structures. Although the modifications resulted in a small increase in cost for some structures, there was no increase in total project cost. It is not clear from the guidance stated in the previous paragraph whether the "additional funds" refer to individual properties in elevation projects or to the overall cost of the project. VDEM should have contacted FEMA if it had questions about this guidance. Since the modifications did not change the objective of the mitigation project and did not increase the total cost of the project, there is no compelling reason for denying the costs associated with the modifications on this grant. However, we remind VDEM that notification of FEMA Region III and obtaining their prior approval of grant modifications is still a requirement on future mitigation grants.
Project Management Costs:
FEMA initially approved ten (10) percent of the original project costs for management cost. FEMA subsequently determined that management cost should be reduced because Gloucester County requested management costs related to five (5) properties that withdrew from the project. Gloucester County stated that it expended management efforts on the withdrawn properties. Therefore, it believes the requested costs are eligible and reasonable. After reviewing all documentation, we have determined that Gloucester County's request for management cost is less than ten (10) percent of the total project cost and is reasonable.
Based on the above analysis, I approve the full amount of the appeal for the Gloucester County Elevation and Acquisition Project DR-1491-0062. By copy of this letter, I request the Regional Administrator to take appropriate action to implement this determination.
We recommend that VDEM continue to work with Region III staff to improve the management of hazard mitigation grants.
Please inform Gloucester County of this decision. My determination is FEMA's final decision on this matter pursuant to Title 44 CFR 206.440, Appeals.
Sandra K. Knight, PhD, PE
Deputy Associate Administrator for Mitigation
cc: Matthew Wall, State Hazard Mitigation Officer
MaryAnn Tierney, Regional Administrator, FEMA Region III
Eugene K. Gruber, Division Director, Mitigation Division, FEMA Region III