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Playing by the Rules Ch. 4 Page Chap Property Mana ter 4 gement and Disposition Contents 4.1 Overview ...........................................................................................................................................................4-3 4.2 Real Property....................................................................................................................................................4-4 4.3 Personal Property — Equipment ..............................................................................................................4-4 4.4 Personal Property — Supplies ...................................................................................................................4-6 4.5 Personal Property — Intangible ...............................................................................................................4-6 Exercise for Chapter 4—Property Management and Disposition Questions ....................................4-7 Exercise for Chapter 4—Property Management and Disposition Answers .......................................4-8 Playing by the Rules: CDBG Administrative Systems | Chapter 4-1 Playing by the Rules: CDBG Administrative Systems | Chapter 4-2 Notes Chapter 4: Property Management and Dispotion If you use CDBG funds as a subrecipient to acquire real or personal property, you are respon- sible for ensuring: • That the property is used for its intended (and approved) purpose. • That you take care of it. • That if you sell it, you reimburse the grantee for the CDBG share of the property’s value. In managing the ownership of such property, keep in mind that: • The rules about property management and disposition difer slightly depending on whether you are a public-sector or a private-sector subrecipient (the rules are generally more restric- tive for governmental subrecipients). • The rules depend on the nature of the property; the rules treat real property (e.g., land and buildings) diferently than personal property (e.g., equipment, supplies, and intangible property like copyrights). This chapter outlines the rules for subrecipients regarding the ownership, management, and disposition of real and personal property. Several key themes apply to most property: • You may only acquire property with CDBG funds for a specifc purpose defned in your agreement and approved by the grantee. • The use of that property for its approved purpose must continue: • You must need and use personal property for the CDBG activity. • Real property acquired or improved with CDBG funds in excess of $25,000 must gener- ally be used for its approved purpose for at least fve years following the expiration of your Agreement (24 CFR 570.505). • Conditions for the acquisition, use, and disposition of such real property are outlined in your subrecipient agreement, (24 CFR 570.503(b)(7)). • You must keep accurate records for it (e.g., purchase date, ownership documents, price, loca- tion, physical description, maintenance history and condition, original and current use, and other inventory types of data). • You have to ensure the use of the property in accordance with its intended purpose and subsequently prevent its damage, theft, or loss. • If you no longer need the property, you must dispose of it according to specifc rules which address issues such as paying back the grantee, accounting for program income, etc. The following chart summarizes the applicability of specifc sections of the regulations to par- ticular categories of property for subrecipients and shows the relevant regulations afecting its ownership, use, and disposition. Note: In general, the rules for acquisition, management, and disposition of real property are found in the CDBG Regulations (24 CFR 570), and the rules for ownership, use, and sale of personal property are in the Omnibus Circular (2 CFR 200). - Chapter 4: Property Management and Dispotion Exhibit 4-1: Rules for Property Management and Disposition Notes CDBG Regula- tions (24 CFR 570) and Omnibus Circular (2 CFR 200) Real Property (Acquired with CDBG funds) Personal Property Acquired with CDBG funds Tangible Intangible Typical Example Land/Buildings Equipment Supplies Copyrights Ownership See property ac- quisition, 24 CFR 570.201(a), 201(c), rehabilitated 24 CFR 570.202, inc. for economic development 24 CFR 570.203(a) Vested in sub- recipients 2 CFR 200.313(a), also see 24 CFR 570.207(b) (1) and 2 CFR 200.439(b) Vested in sub- recipients 2 CFR 200.314 Nonexclusive license to govt. 2 CFR 200.315 Rental or Leases 2 CFR 200.465 2 CFR 200.465 2 CFR 200.465 Use & Management 24 CFR 570.503(b) (7)1 2 CFR 200.313(c- d) 2 CFR 200.314 2 CFR 200.315 Disposition 24 CFR 570.503(b) (7) 2 CFR 200.313(e) also see 24 CFR 570.502(a)(6) 2 CFR 200.314 2 CFR 200.313(e) AS YOU READ THIS CHAPTER, THINK ABOUT YOUR RESPONSIBILITY… 1. To exercise the same care for property as if you had purchased it with your agency’s own funds. 2. To ensure that your agency’s records are current and complete in documenting the owner ship, use, management, and/or disposition of your property. 3. To implement clear written procedures for maintaining and protecting your property. 4. When property is no longer needed, to ensure that you follow the applicable disposition rules for the particular type of property involved. 4.1 Overview For these Federal regulations, “property” is classifed according to the following distinct categories: • Real property: Land, including any structures located on the land, but excluding any mov- able machinery or equipment. • Personal property: Any kind of property other than real property. Personal property can be tangible (such as equipment, furniture, and supplies), or intangible (such as copyrights, patents, and inventions). Further distinctions can be made between: • Equipment, which describes tangible personal property (including information tech- nology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the grantee or subrecipient for fnancial statement purposes, or $5,000 (see 2 CFR 200.1). 24 CFR 570.501(b) requires that units of general local government participating with, or as part of, an urban county, or as part of a metropolitan city, follow the same requirements as are applicable to subrecipients, except that the fve-year period identifed under 24 CFR 570.503(b)(7)(i) begins with the date that the unit of general local govern- ment is no longer considered by HUD to be a part of the urban county or metropolitan city, instead of the date that the subrecipient agreement expires. Playing by the Rules: CDBG Administrative Systems | Chapter 4-3 1 Playing by the Rules: CDBG Administrative Systems | Chapter 4-4 Notes Chapter 4: Property Management and Dispotion • Supplies, which include all tangible personal property other than equipment. A com- puter is a “supply” if the acquisition cost is less than the lesser of the capitalization level established by the grantee or the subrecipient for fnancial statement purposes or $5,000, regardless of the length of its useful life (see 2 CFR 200.1). The Federal requirements relating to property are organized according to title (i.e., ownership), use, and disposition, according to Exhibit 4-1 above. In general, your organization’s property management system must provide for accurate records, the conduct of regular inventories, adequate maintenance and control, and sales procedures that provide for competition when practical, and that result in the highest possible return. The sections below explain these re- quirements for each type of property. 4.2 Real Property For real property acquired or improved in whole or in part with CDBG funds over $25,000, the grantee cannot permit a change of use or planned use of the property (including the benef- ciaries of such use) without frst providing its citizens notice and opportunity to comment (as governed by 24 CFR 570.505) and determining that either: • The contemplated new use meets one of the National Objectives (24 CFR 570.208) and is not a building for the general conduct of government (24 CFR 570.207(a)(1)). • The grantee determines that the contemplated new use is appropriate (after consultation with its citizens) but will not meet a National Objective. In this latter case, the grantee must reimburse the CDBG program in the amount of the current fair market value of the proper- ty, less the value attributable to the non-CDBG portion of the acquisition or improvements. For subrecipients, your Subrecipient Agreement must be explicit about the use of any real property under your control that your organization acquired, leased, or improved in whole or in part with CDBG funds over $25,000. For such instances, 24 CFR 570.503(b)(7) mandates that for such real property either: • Meet one of the CDBG program’s National Objectives for at least 5 years after the expiration of the Subrecipient Agreement (or longer time as specifed by the grantee in your Agree- ment) (24 CFR 570.503(b)(7)(i)). • If a National Objective is not met during this period, your organization must reimburse the grantee for the CDBG share of the current fair market value (24 CFR 570.503(b)(7)(ii)). If the subrecipient agreement has no end date, the CDBG use requirements extend indefnitely. Rental costs of real property are allowable provided the rates are reasonable in comparison to rental costs of comparable property; the market conditions in the area; alternatives available; and the type, life expectancy, condition, and value of the property leased (2 CFR.200.465 (a-c)). CPD Notice CPD 17-09, “Managing of Community Development Block Grant Assisted Real Prop- erty provides additional guidance to grantees and subrecipients in meeting program require- ments relating to real property acquisition, management, and disposition. The Notice includes common scenarios for acquisition, demolition, and disposition in the CDBG program, including special sections on change of use. 4.3 Personal Property — Equipment The purchase of equipment, fxtures, motor vehicles, and furnishings, is generally ineligible (24 CFR 570.207(b)(1)(iii)). Personal property must be an integral fxture to an assisted structure to be eligible. In certain cases, CDBG funds may be used for equipment: • To purchase, lease, or to pay depreciation in accordance with 2 CFR part 200, subpart E, for such items when necessary for your organization to administer activities assisted with CDBG funds. • When eligible as fre fghting equipment. Playing by the Rules: CDBG Administrative Systems | Chapter 4-5 Notes Chapter 4: Property Management and Dispotion • When such items constitute all or part of a public service pursuant to 24 CFR 570.201(e), such as a Meals on Wheels vehicle; however, leasing vehicles is normally the preferred op- tion (2 CFR 200.465(e)). For organizations using CDBG funds for equipment, the following principles apply: • Acquisition (2 CFR 200.313(a)): Title to equipment acquired with CDBG funds is vested in your organization, subject to the conditions described in the following section. • Use (2 CFR 200.313(c)): Your organization must use equipment purchased with CDBG funds for the CDBG program or project as long as needed, whether or not the program or project continues to be supported by Federal funds. • During the time that your organization or its designee is using equipment for the CD- BG-funded program, you must also make the equipment available for use on other Federally funded projects or programs, provided that such use does not interfere with work on the CDBG-funded program (2 CFR 200.313(c)(2)).  • When no longer needed for the CDBG-funded program, other Federally- supported agencies may use the equipment, in the following order of priority: (i) Activities under a Federal award from HUD, then (ii) Activities under Federal awards from other Federal agencies. This includes consolidated equipment for information technology systems (2 CFR 200.313(c)(i)(ii)). • HUD prohibits your organization from using CDBG-acquired equipment to provide ser- vices for a fee that competes unfairly with private companies that provide equivalent services unless specifcally authorized by Federal statute (2 CFR 200.313(c)(3)). • With the approval of the grantee, you may trade in equipment acquired with CDBG funds for updated equipment (2 CFR 200.313(c)(4)). • Management requirements (2 CFR 200.313(d)): For equipment (including replacement equipment) you have acquired in whole or in part with CDBG funds, you must have proce- dures and control systems in place to: • Keep adequate equipment records (2 CFR 200.313(d)(1)), including: • Description of the property. • Identifcation (such as an ID or serial number). • Funding source. • Titleholder. • Acquisition date and cost. • Federal share of the cost. • Location, use, and condition. • Unit acquisition or rental cost. • When appropriate, disposition data (date of disposition and sale price). • Conduct a physical inventory of the property no less often than every two years, with a reconciliation of the inventory with the equipment records (2 CFR 200.313(d)(2)). • Ensure adequate safeguards for preventing loss, damage, or theft of property (2 CFR 200.313(d)(3)). • Maintain the equipment in good condition (2 CFR 200.313(d)(4)). • Disposition (2 CFR 200.313(e)): When original or replacement equipment acquired with CDBG funds is no longer needed for the original program or other activities currently or previously assisted with Federal funds, the following rules of disposition will apply: • You may retain, sell or otherwise dispose of equipment with a current per-unit fair market value of less than $5,000 after notice to the grantee, subject to the conditions in 3) below (2 CFR 200.313(e)(1)). • You may retain or sell equipment with a current per-unit fair market value of $5,000 or more after notice to the grantee; the grantee retains the right to compensation in an amount equal to  multiplying the current market value or proceeds from the sale by Playing by the Rules: CDBG Administrative Systems | Chapter 4-6 Notes Chapter 4: Property Management and Dispotion HUD’s percentage of participation in the cost of the original purchase (2 CFR 200.313(e) (2)).  • The grantee may reserve the right to transfer the title of the equipment to the Federal Government or a third party (2 CFR 200.313(e)(3)). • Governmental subrecipients may have their own disposition procedures. In those cas- es, the more restrictive requirements would apply. In addition, per 24 CFR 570.502(a)(8), in all cases when equipment purchased with CDBG funds is sold, the net proceeds are considered program income. 4.4 Personal Property — Supplies See 2 CFR 200.314 Supplies. Title to supplies will vest in your organization upon acquisition, subject to the following condi- tions: • If there is a residual inventory of unused supplies exceeding $5,000 upon completion of the program and the supplies are not needed for any other Federal award, you may keep the supplies for use in other activities or sell them when the CDBG award or agreement ends. But in either case, you must compensate the grantee for its share. The amount of compen- sation must be computed in the same manner as for equipment (see 2 CFR 200.313(e)(2)). • As long as the Federal Government retains an interest in the supplies, you must not use supplies acquired under a Federal award to provide services to other organizations for a fee that is less than private companies charge for equivalent services (2 CFR 200.314(b)).  • In all cases in which the residual inventory of supplies is sold, the proceeds are considered program income. 4.5 Personal Property — Intangible See 2 CFR 200.315—Intangible Property. The Federal Government reserves a royalty-free, nonexclusive, and irrevocable license (2 CFR 200.315(b)) to reproduce, publish, or otherwise use and authorize others to use: • The copyright to any work developed with CDBG funds. • Any rights of copyright that a subrecipient or a contractor purchases with CDBG support. Playing by the Rules: CDBG Administrative Systems | Chapter 4-7 Notes Chapter 4: Property Management and Dispotion Exercise for Chapter 4—Property Management and Disposition Questions Circle the correct answer. 1. For real property controlled by a subrecipient and acquired or improved with CDBG funds in excess of $25,000, what is the minimum period following the expiration of the Subrecip- ient Agreement that such property must be used to continue to meet a National Objective? a. One year. b. Three years. c. Five years. d. Ten years. e. As long a period as the grantee feels is appropriate. 2. When are the proceeds from a subrecipient’s sale of equipment purchased with CDBG funds considered to be program income? a. Never. b. When the proceeds are returned to the grantee as compensation for the original CDBG funding. c. When the net proceeds exceed the compensation due to the grantee. d. When the depreciated value of the equipment exceeds the CDBG portion of the original acquisition cost. e. Always. 3. A subrecipient has in its inventory a computer acquired with CDBG funds that is worth less than $500. The subrecipient may retain it without paying the grantee for its current value if the grantee does not need it for any other Federally sponsored program or project. TRUE FALSE 4. The Federal Government’s copyright license for any written work developed by a subrecip- ient with CDBG funds does not preclude the subrecipient from reproducing or otherwise publishing such work. TRUE FALSE The answers are on the next page. Playing by the Rules: CDBG Administrative Systems | Chapter 4-8 Notes Chapter 4: Property Management and Dispotion Exercise for Chapter 4—Property Management and Disposition Answers 1. (c) Five years. Although a grantee may stipulate a longer period (in a closeout agreement, for example), fve years is the minimum period during which such property must continue to be used to address a CDBG National Objective. If, on the other hand, during that period a National Objective is no longer being met or the subrecipient chooses to dispose of the real property, the subrecipient must reimburse the grantee for the fair market value of the property, less any portion attributable to non- CDBG funds. 2. (e) Always. With the qualifcation that if a portion of the equipment purchase was f- nanced with non-CDBG funds, only the CDBG portion of the proceeds would be program income for the CDBG program. 3. FALSE. Regardless of dollar value, equipment acquired with CDBG funds and no longer needed by the subrecipient for CDBG activities must be transferred to the grantee or retained by the subrecipient only after compensating the grantee. 4. TRUE. Although the Federal Government reserves a copyright license on such work, it is a nonexclusive license.