5101:9-4-11 Rental costs and lease agreements.

(A) The county family service agency (CFSA) and workforce development agency (WDA) shall follow federal, state, and local regulations when seeking federal financial participation (FFP) for the costs associated with the rental or lease of property and/or equipment. The costs must be necessary and reasonable for proper and efficient performance and administration of the specific program financing the cost and must be in compliance with 2 C.F.R. part 200 and generally accepted accounting principles (GAAP).

(B) . In determining reasonability, the CFSA or WDA shall research rental/lease costs of property and/or equipment to ensure costs are allowable to the extent that the rates are reasonable and consideration is given to each of the following factors:

(1) Available alternatives;

(2) Comparable property, if available;

(3) Area market conditions; and

(4) The type, life expectancy, condition, and value of the property being leased.

CFSA and WDA shall review rental/lease agreements periodically to determine if circumstances have changed and other options are available.

(C) Specific requirements for special lease/rental agreement types

(1) Sale and leaseback agreements.

A sale and leaseback agreement is one under which one party sells property to a buyer and the buyer immediately leases the property back to the seller. While it is acknowledged that an increase in rental costs may result from a change in ownership, the allowable claim to federal programs cannot exceed the amount allowable prior to the sale and leaseback arrangement. Rental/lease costs are allowable only up to the amount that would be allowed had the non-federal entity continued to own the property. Examples of the types of costs included in the calculation of allowable costs are provided in paragraph (C)(4) of this rule.

(2) Less-than-arm's-length lease agreements.

For this purpose, a less-than-arm's-length lease is one in which one party to the lease agreement is able to control or substantially influence the actions of the other. Rental/lease costs are allowable only up to the amount that would be allowed if the non-federal entity owned the property. Examples of the types of costs included in the calculation of allowable costs are provided in paragraph (C)(4) of this rule. Such leases include, but are not limited to, those between the following entities:

(a) Divisions of the non-federal entity;

(b) The non-federal entity under common control through common officers, directors, or members, as in a lease between a county agency and a board of county commissioners; and

(c) The non-federal entity and a director, trustee, officer, or key personnel of the non-federal entity or his/her immediate family as defined in 2 CFR 200.465 , either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest.

(3) Capital lease agreements.

A capital lease agreement is a lease that is required to be treated as a capital lease under generally accepted accounting principles (GAAP).

(a) The following provisions of GAAP, as outlined in "Financial Accounting Standards Board Statement 13," must be used to determine whether a lease is a capital lease:

(i) The CFSA or WDA obtains the title to the property/equipment by the end of the lease term; or

(ii) The CFSA or WDA has an option to purchase the property/equipment at a bargain purchase price at the end of the lease term. A bargain purchase option only exists if the purchase price is significantly below market value; or

(iii) The lease term (including initial term and renewal options) is equal to seventy-five per cent or more of the estimated economic life of the lease property/equipment. ; or

(iv) The present value at the beginning of the lease term of the minimum lease payment, excluding that portion of the payments representing executory costs, equals or exceeds ninety per cent of the fair value of the leased property/equipment. The portion of the payments representing executory costs such as insurance, maintenance, and taxes including profit are excluded from the present value calculation.

(v) However, if the beginning of the lease term falls within the last twenty-five per cent of the total estimated useful life of the leased property including earlier years of use, the criterion in paragraphs (C)(3)(a)(iii) and/or (C)(3)(a)(iv) of this rule shall not be used to determine classification of the lease.

(b) Rental/lease costs are allowable only up to the amount that would be allowed had the non-federal entity purchased the property on the date the lease agreement was executed. Examples of the types of costs included in the calculation of allowable costs are provided in paragraph (C)(4) of this rule.

(4) Calculation of allowable rental/lease costs under the special lease/rental types in this paragraph include expenses such as:

(a) Depreciation as defined in rule 5101:9-4-10 of the Administrative Code;

(b) Maintenance costs of keeping the property in efficient operating condition. These costs are not allowable if included in the rental agreement or result in an increase in the property's permanent value;

(c) Taxes; and

(d) Insurance.

(D) The rental of any property owned by any individuals or entities affiliated with the non-federal entity, including commercial or residential real estate, for purposes such as the home office workspace is unallowable.

Effective: 2/21/2015
Promulgated Under: 111.15
Statutory Authority: 5101.02
Rule Amplifies: 5101.02
Prior Effective Dates: 11/20/2006, 2/17/2012