This issue of Disaster Recovery Today focuses on the methods for presenting disaster-related costs to FEMA to obtain a favorable decision on eligibility.
Disaster Preparedness and Recovery Consulting
Determining Eligibility Methods for Presenting Disaster-Related Costs to FEMA to Obtain Eligibility
IN THIS ISSUE
This issue of Disaster Recovery Today focuses on the methods for presenting disaster-related costs to FEMA to obtain a favorable decision on eligibility. This step is the fourth in a nine-step process identified by Tidal Basin to respond to a declared disaster. Please use the enclosed reply card to request free back issues or to provide us with any comments or suggestions for future issues.
In Disaster Recovery Today issue #4002 “Categorizing Losses,” we discussed the categorization of disaster-related damages and costs in a manner sufficient to satisfy not only FEMA, but also insurance carriers and other federal agencies (OFAs). Once damages have been properly categorized, they must also be deemed eligible by FEMA before financial assistance can be obtained. This issue focuses on the methods for presenting disaster-related costs to FEMA to obtain a favorable decision on eligibility. Subrecipient Eligibility Before determining the costs that are reimbursable from FEMA, it is necessary to first determine whether your organization is eligible for Public Assistance. Eligible Subrecipients are:
and a certification that it is compliant with Internal Revenue Code section 501(c)(3) and State law requirements. Additionally, for the PNP to be eligible, FEMA must first determine whether it “owns or operates an eligible facility. For PNPs, an eligible facility is one that provides critical services or non-critical social services as defined by FEMA (See FEMA’s PAPPG V4 — pages 43-48) General Work Eligibility If your organization is eligible for public assistance, FEMA relies on the following tests to determine what is eligible work: 1. Required as a result of the event. 2. Caused by the event (no pre-existing damage or negligence). 3. Located within the designated disaster area.2 4. The legal responsibility of an eligible Subrecipient. TEST #1 Required as a Result of the Event FEMA holds the Subrecipient responsible for detailing how work is required as a direct result of the event. Typically, this can be accomplished by showing how Emergency Work3 is necessary due to
State government agencies, such as departments of transportation, environment, or parks; Local governments, such as a county, city, town, special district or regional authority, village, or borough; Indian tribes or authorized tribal organizations1 and Alaskan native villages; or Certain private nonprofit (PNP) organizations are eligible Subrecipients if they show they have: • A ruling letter from the U.S. Internal Revenue Service that was in effect as of the declaration date and granted tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code; or • Documentation from the State substantiating it is a non-revenue producing, nonprofit entity organized or doing business under State law. If the [PNP] organization is not required to obtain 501(c)(3) status or tax-exempt status under applicable State law, the organization must provide articles of association, bylaws, or other documents indicating that it is an organized entity,
“Primarily, Subrecipients know best what needs to be done in the immediate aftermath of a disaster. However, it is common for those efforts to be questioned by FEMA months, or even years, after an event.”
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an immediate threat resulting from the declared incident or that other work is required to address damage caused by the declared incident. Since debris removal is often a major part of a Subrecipient’s work and costs, FEMA pays special attention to ensuring that the work is necessary to alleviate an immediate threat that was generated during the declared incident period and directly by the declared incident. For temporary repairs or other emergency protective measures, mold remediation, and Permanent Work,⁴ Subrecipients are only required to demonstrate that damage was caused directly by the declared incident. However, FEMA will review these types of work to ensure the repairs are not needed due to other factors such as deterioration, deferred maintenance, negligence or the Subrecipient’s failure to take measures to protect a facility from further damage. Examples of these factors are provided in the section titled “Test #2.” While one would assume that a Subrecipient would not arbitrarily take on extraordinary work unless it was required to achieve a prompt response and recovery following a disaster, this alone is not sufficient to satisfy FEMA’s eligibility requirements. Often, how a Subrecipient describes what was done and the reasons for doing it will be key determining factors. Because this criteria is broad, it is extremely important to succinctly define the what, why, where, how, and by whom for every task for which a Subrecipient hopes to seek reimbursement. It is equally important to further support a claim with all pertinent documentation, such as damage photographs or condemnation notices.
Primarily, Subrecipients know best what needs to be done in the immediate aftermath of a disaster. However, it is common for those efforts to be questioned by FEMA months, or even years, after an event. If a Subrecipient clearly believes that their efforts were required as the result of an event, and FEMA and the state do not agree, the Subrecipient must be prepared to appeal that determination in accordance with CFR 44 206.206 (Appeals). TEST #2 Caused by the Event (No pre-existing damage or negligence) While this requirement might seem self- explanatory, this area is often subject to disagreement between Subrecipients and FEMA. The following are examples of questions that may be asked to satisfy this requirement:
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In the case of debris in a stream: Was all or some of the debris generated by the event? To satisfy FEMA requirements, Subrecipients must show through maintenance records that they normally maintain and keep the stream free of debris. In the absence of such records, there must be photographic evidence that the debris was a result of the event and that the debris was a hazard. Where a building suffered severe roof damage: Were all attempts made to mitigate damage to the interior
via tarps or other coverings? It is the Subrecipient’s responsibility to make every effort to minimize losses. The same would also be the case for a flooded building where it was necessary to pump water and dehumidify the area to minimize mold damage. This does not mean, however, that a Subrecipient needs to undertake measures that are not cost-effective, such as dehumidifying a building that was completely engulfed by floodwaters.
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Where a building suffered structural damage: Were any of the damages pre-existing? This is one of the most difficult arguments to overcome; yet if a building was habitable — despite being in less than pristine condition before the event — but after the event is uninhabitable, it makes sense that a significant portion of the damages can be attributed to the event. The extent and cost of damages should be determined by someone qualified not only to assess the damage, but to effect the repairs. Again, any evidence supporting the condition of the facility prior to the event (e.g., photographs, renovation plans, permits, etc.) is crucial in the development of your position. Where a truck is damaged while removing debris: Was the damage due to driver negligence? Often Subrecipients fail to go through their normal accident reporting procedure. If you typically fill out accident reports and photograph the scene, it is important to also do so after a disaster. This is generally sufficient to prove your position to FEMA. “… it is imperative that Subrecipients control the inspection process and ensure that only those qualified to answer questions about pre-existing conditions interact with FEMA.”
When applying this test, it is imperative that Subrecipients control the inspection process and ensure that only those qualified to answer questions about pre- existing conditions interact with FEMA. TEST #3 Located Within the Designated Disaster Area Following the declaration of a major disaster, FEMA will designate the counties in a state that are eligible for assistance and the various levels of assistance that will be available. A damaged facility or the work performed must be in a designated county to be eligible for Public Assistance. If the damaged facility is located within a declared county but the entity having the legal responsibility for the facility is from a non-declared area, the damaged facility will still be eligible. If an entity from within the declared area has a damaged facility located outside the declared area, that facility will not be eligible even if damaged by the same event.
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Depending on the damage and response activities, some counties may be declared for emergency work only (Categories A and B), while others may receive assistance for emergency and permanent work (Categories A through G). There are a few exceptions to the requirements related to being located within the designated disaster area.
If the work is related to sheltering or evacuation activities, these functions can be performed outside of the designated disaster area, as outlined in 44 CFR § 206.223(a)(2). Also, Tribal Governments do not always have geographical boundaries and some have boundaries that cross state lines. Therefore, Tribal Government declarations do not usually define specific designated geographical areas. If a specific designated area is not defined in the declaration, FEMA determines eligibility based on legal responsibility and whether the work is directly related to the declared incident.⁵ TEST #4 The Legal Responsibility of an Eligible Subrecipient As with eligible facilities, the work performed must be the legal responsibility of the Subrecipient at the time of the disaster to be eligible. Ownership of a facility is generally sufficient to establish responsibility for work undertaken to repair the facility. If a Subrecipient leases a facility as a tenant, however, repairs to that facility are not eligible unless the lease states that the lessee is responsible for such repairs. In this case, a copy of the lease agreement should be provided to FEMA to determine responsibility.
“When a request is made for Public Assistance for a facility whose repair FEMA considers to be under the authority of another federal agency, the specific federal agency with responsibility will be asked to review the request and advise FEMA whether the work is eligible.”
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“If a building was under construction or was being significantly renovated, a contractor involved may have legal responsibility for the facility.”
Although the lease usually contains general repair and maintenance language, responsibility for damage resulting from a disaster may not be established. In the absence of any mention in the lease, the owner of the facility will be assumed responsible for the repair. While this may seem straightforward, other variables often factor into the decision-making process. If a building was under construction or was being significantly renovated, a contractor involved may have legal responsibility for the facility. Also, in those situations where a formal lease is not present, but responsibility for the facility has been agreed upon, Subrecipients may need to display how similar situations were addressed in the past, when there was no FEMA involvement. Another issue that falls within the legal responsibility area is whether the repairs fall under the jurisdiction of other federal agencies (OFAs). For certain types of facilities, disaster assistance is the responsibility of a federal agency other than FEMA. Public Assistance is not available for the permanent repair of such facilities and is limited in nature to emergency work. When a request is made for Public Assistance for a facility whose repair FEMA considers to be under the authority of another federal agency, the specific federal agency with responsibility will be asked to review the request and advise FEMA whether the work is eligible. If the work falls outside the statutory authority of that agency, FEMA may consider providing assistance for the work under the Stafford Act.
However, the other federal agency may determine the work is not eligible for assistance because:
The agency does not have funds for that particular program at that time, or
The work is the responsibility of the Subrecipient, either by statute or by agreement with the agency. If either of the above reasons applies, Public Assistance will not be available because the work falls under the authority of the other agency and the eligibility was determined under that agency’s regulations.
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FEMA assistance generally is not available if another agency’s program can reimburse a Subrecipient for work done by that Subrecipient. Since some agencies must perform the work or get a contract for the work themselves, and are not authorized to reimburse a Subrecipient, a Subrecipient may find that the work it did cannot be reimbursed. While denial of payment by itself is not a basis for requesting Public Assistance from FEMA, if there is an emergency need FEMA may consider assistance for unreimbursed emergency work that has been done or paid for by the Subrecipient. If the work is not emergency work, it is not eligible for Public Assistance.
The following are federal agencies that often have authority to provide disaster assistance:
U.S. Army Corps of Engineers (USACE)
Department of Agriculture — Natural Resources Conservation Service (NRCS)
Federal Highway Administration (FHWA)
Once the above factors are addressed satisfactorily, FEMA will determine whether the facility was being actively used and for what purpose. If the facility was abandoned, and there were no formal plans for its renovation and use, they will
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“When determining eligible costs, the defining factor will be whether the costs are deemed ‘reasonable.’”
likely determine the facility ineligible. Also, if the facility was being utilized for purposes other than its intended use, FEMA will only provide repairs to support that function. An example of this would be an old county garage being used to store maintenance equipment: FEMA would repair/replace only the cost of the same square footage being used for storage purposes. Eligible Costs Once eligible work is established, the next hurdle is to verify that the costs incurred are eligible for reimbursement. Not all costs incurred by an eligible Subrecipient are eligible for Public Assistance funding. Eligible costs are costs that are:
Necessary and reasonable to accomplish the work properly and efficiently.
The eligible cost criteria apply to all direct costs, including salaries, wages, fringe benefits, materials, equipment, and contracts awarded for eligible work. Prior to FEMA’s arrival, Subrecipients are often forced to make decisions on the spot. Unfortunately, some of these decisions allow for subsequent second- guessing on issues such as procurement, reasonable costs, and actual performance. As discussed in earlier issues of Disaster Recovery Today, any pre-disaster preparation, such as pre-selecting qualified contractors, will help reduce future problems. When determining eligible costs, the defining factor will be whether the costs are deemed “reasonable.” A Subrecipient will need to prove to FEMA that the cost incurred was appropriate for the work completed. Many factors such as availability of resources, local cost factors, difficulty of the project, and the timing of completion can make costs appear exorbitantly high. Oftentimes, if a Subrecipient can demonstrate that they have paid similar costs for comparable work, FEMA will be satisfied.
Directly tied to the performance of eligible work;
Adequately documented;
Reduced by all applicable credits, such as insurance proceeds and salvage values;
Authorized and not prohibited under federal, state, territorial, Tribal, or local government laws or regulations; Consistent with the Subrecipient’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities of the Subrecipient; and
Unfortunately, the term “reasonable” is very subjective, often making it difficult to
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later prove to FEMA that the costs incurred were not excessive, considering the situation at the time the decisions were made. FEMA determines reasonableness by evaluating several factors, including the following: • The cost is of a type generally recognized as ordinary and necessary for the type of facility or work. 6 • The cost is comparable to the current market price for similar goods or services based on:⁷ – Historical documentation; – Average costs in the area; or – Published unit costs from national cost estimating databases.
whether there was an opportunity for the Subrecipient to obtain more reasonable pricing; – Project-specific complexities, such as environmental or historic issues, remote access or location, provision of a unique service with few providers, or elements requiring an extraordinary level of effort; or – The Subrecipient deviated from its established practices. 8 • Exigent circumstances existed. If so, FEMA evaluates the length of time the circumstances existed compared to the length of time costs were incurred. • The Subrecipient participated in ethical business practices, ensuring parties to a transaction are independent of each other, without familial ties or shared interests and on equal footing without one party having control of the other. 9 • The Subrecipient complied with local, state, and/or federal procurement requirements. When a disaster occurs, Subrecipients are faced with the task of doing whatever is necessary to protect property, protect
• Any of the following factors caused escalation of costs:
– Shortages in equipment, materials, supplies, labor, or contractors. When escalating costs are due to shortages, FEMA considers whether the Subrecipient’s work continued beyond the period of shortages and
Terry Kelly/Shutterstock.com
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“Nobody knows better how to respond to a disaster than the Subrecipient, and the successful Subrecipient is the one who can properly document and justify that response.”
lives, and restore normalcy as quickly as possible. It sometimes becomes difficult to explain, months later, that what was done was prudent and cost-effective at the time. The key to a favorable recovery is good documentation. It is hard to explain to a FEMA debris specialist that you paid $42 a cubic yard to remove debris by hand if they view debris removal only as an activity involving large equipment normally ranging from $12-$20 a cubic yard. However, if that debris was hand-cleared in a park because heavy equipment could not be operated, then the cost should be considered reasonable. In addition to good documentation, make sure that the personnel who are best prepared to support your position are available to respond to questions. This can be done by having an internal team in place prior to a disaster who understand what will be needed to recover financially.
Terry Kelly/Shutterstock.com
Ensure all adverse eligibility rulings in writing (Determination Memorandum – DM), so FEMA’s exact reasons can be weighed against current laws and policies. If a DM is anticipated, Subrecipients should request a Facilitated Discussion
__________
(through the Recipient) with FEMA leadership to find resolution. It is
extremely important to resolve eligibility and any other disputes “on the ground,” as the formal appeals process can be very time consuming and extremely frustrating. Nobody knows better how to respond to a disaster than the Subrecipient, and the successful Subrecipient is the one who can properly document and justify that response.
As evidenced by the overview given here, eligibility can become very confusing. The confusion is further amplified when field inspectors or grant developers from other states add their local interpretations to the mix. Ideally, FEMA will publish disaster- specific guidance memorandums to be followed for each disaster, however, even when they are published, they are not always followed.
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The Idea Behind the Agency
Sec. 101. Congressional Findings and Declarations (42 U.S.C. 5121)
a. The Congress hereby finds and declares that: 1. because disasters often cause loss of life, human suffering, loss of income, and property loss and damage; and 2. because disasters often disrupt the normal functioning of governments and communities, and adversely affect
1. revising and broadening the scope of existing disaster relief programs; 2. encouraging the development of comprehensive disaster preparedness and assistance plans, programs, capabilities, and organizations by the States and by local governments; 3. achieving greater coordination and responsiveness of disaster preparedness and relief programs; 4. encouraging individuals, States, and local governments to protect themselves by obtaining insurance coverage to supplement or replace governmental assistance; 5. encouraging hazard mitigation measures to reduce losses from disasters, including development of land use and construction regulations; and 6. providing Federal assistance programs for both public and private losses sustained in disasters[.]
individuals and families with great severity; special measures, designed to assist the efforts of the affected States in expediting the rendering of aid, assistance, and emergency services, and the reconstruction and rehabilitation of devastated areas, are necessary.
b. It is the intent of the Congress, by this Act, to provide an orderly and continuing means of assistance by the Federal Government to State and local governments in carrying out their responsibilities to alleviate the suffering and damage which result from such disasters by:
(Pub. L. 93-288, title I, § 101, May 22, 1974, 88 Stat. 143; Nov. 23, 1988, Pub. L. 100-707, title I, § 103(a), 102 Stat. 4689.)
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1 PNP eligibility is heavily scrutinized and involves numerous factors. To determine whether your organization is eligible, please refer to FEMA Public Assistance Program Policy Guide at https://www.fema.gov/media-library/assets/documents/111781, with the exception of sheltering and evacuation activities. 2 FEMA’s Public Assistance Program Policy Guide Volume 3.1, April 26, 2018 page 20. https://www.fema.gov/pdf/government/grant/pa/fema323_app_handbk.pdf 3 Emergency Work is defined as “That work which is performed to reduce or eliminate an immediate threat to life, to protect health and safety, and to protect improved property that is threatened in a significant way as a result of a major disaster. Emergency work frequently includes clearance and removal of debris and temporary restoration of essential public facilities and services (Categories A and B).” https://www.fema.gov/pdf/government/grant/pa/fema323_app_handbk.pdf 4 Permanent Work is defined as “That work which is required to restore a facility, through repairs or replacement, to its pre-disaster design, function, and capacity in accordance with applicable codes and standards (Categories C through G).” https://www.fema.gov/pdf/government/grant/pa/fema323_app_handbk.pdf 5 FEMA’s Public Assistance Program Policy Guide Volume 3.1, April 26, 2018 page 20. https://www.fema.gov/pdf/government/grant/pa/fema323_app_handbk.pdf
6 2 CFR § 200.404(a). 7 2 CFR § 200.404(c). 8 2 CFR § 200.404(e). 9 2 CFR § 200.404(b).
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