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 225.

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

(1) Available alternatives;

(2) Area market conditions ; and

(3) The type, life expectancy, condition, and value of the propertybeing 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 governmental unit 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 when 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 had the title to the property been vested in the governmental unit. 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 a governmental unit;

(b) Governmental units 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) To the extent otherwise allowable, a governmental unit and a director, trustee, officer, or key personnel of the governmental unit or his/her immediate family, 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. A capital lease at its inception meets one or more of the following four criteria as detailed in "Financial Accounting Standards Board Statement 13":

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

(b) 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

(c) The lease term (including initial term and renewal options) is equal to seventy-five per cent or more of the estimated useful life of the property/equipment. 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, this criterion shall not be used to determine classification of the lease; or

(d) The present value at the beginning of the lease term of the minimum lease payment equals or exceeds ninety per cent of the excess of the fair value of the leased property/equipment. 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, this criterion shall not be used to determine classification of the lease. The portion of the payments representing executory costs such as insurance, maintenance, and taxes including profit are excluded from the present value calculation.

Rental/lease costs are allowable only up to the amount that would be allowed had the governmental unit 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 or use allowance;

(b) Maintenance;

(c) Taxes; and

(d) Insurance.

Effective: 02/17/2012
Promulgated Under: 111.15
Statutory Authority: 5101.02
Rule Amplifies: 5101.02
Prior Effective Dates: 11/20/2006