Before anything else, preparation is the key to success. These words, spoken by Alexander Graham Bell, ring true for HUD grantees as they establish administrative and planning activities in support of Community Development Block Grants-Disaster Recovery (CDBG-DR) and Mitigation (CDBG-MIT) programs.
Administration and planning are the only two funding activities needed from the very beginning until the end of the grant. The maximum amount that can be allocated to these activities is 20% of the overall grant, with an additional limitation of administration costs being capped at 5%, which can make the funding a scarce resource to manage.
What’s the best way to manage your CDBG-DR/MIT planning and administration funds? What types of costs can be charged, how do you allocate these costs when necessary, and how should you document costs and track how you’re spending against your budget? In this article, we’ll walk through each of these considerations and share resources to help you make the most of your administrative and planning activities.
But first, some definitions.
Common Planning activities:
- Action planning development
- Developing a method of distribution
- Developing codes, ordinances, and regulations
- Capacity building and training activities
- Studies and plans (housing, economic, etc.)
What are planning activities?
When running CDBG-DR/MIT programs, one of the first things you need to complete is your Action Plan. All the work needed to gather information, from creating the programs, developing your Method of Distribution, conducting public outreach, translating the document, and publishing the document can be considered planning. As stated in 24 CFR 570.205, planning can also apply to publishing studies for the purpose of understanding how to spend CDBG-DR/MIT funds, data gathering efforts not tied to specific programs, updates to codes and standards, or for strategic development.
You may also consider reimbursing a specific project’s design costs or the environmental assessment needed to comply with 24 CFR part 58. These costs are eligible under CDBG but if the planning activity advances into a project with a final cost objective and eligible activity, the costs should be charged against the project. Planning for any specific project is a project cost.
Common administrative activities:
- Staff time to manage grant
- Grant management services
- Monitoring services
- Indirect costs (rent, support staff, executives)
What are administrative activities?
Administrative costs (24 CFR 570.206) are incurred for the management, oversight, and coordination of the CDBG-DR/MIT grant award. These costs are for activities that cannot be tied directly to the delivery of a single program or project. As long as the underlying cost is eligible for CDBG-DR/MIT, a grantee or subrecipient can use federal funding to pay for staff or contractors preparing budgets and schedules, monitoring program activities, or providing legal or accounting services tied to the administration of the overall grant.
The basic review of CDBG-DR/MIT costs for eligibility and compliance still applies. Any cost charged to the CDBG-DR/MIT grant must be allocable, allowable, necessary, reasonable, and adequately documented. When applicable, the procurement of services that will incur administrative costs must conform to the requirements of either 2 CFR 200 or state and local laws and practices per 24 CFR 570.489(g).
Program caps on planning and administrative
When combined, both the planning and administrative activity budgets are capped at 20% of the sum of the grant plus any program income that is received during the grant lifecycle. Within this 20%, no more than 5% of the budget allocation can be used for administration and the remainder (up to 20% in the unlikely scenario of zero admin) can be used for planning activities such as drafting the CDBG-DR/MIT Action Plan and developing the core CDBG-DR/MIT programs that will be serving the community’s needs. If you, as a grantee, subaward some portion of this planning or admin budget to subrecipients, you are responsible for making sure that administrative funds do not exceed this 5% cap and total planning and administrative funds do not exceed this 20% cap.
Only grantees and subrecipients can incur planning and administrative costs. If a subrecipient is incurring planning or administrative costs, the amount and use of the funds must be clearly established in the grant agreement. It is unlikely that, early in the grant, you would have a set allocation between your programs, planning, and administrative activities. As a grantee, you may decide to set up your grant by reserving the maximum amount you can for planning (15%), administration (5%), and program (80%) activities. You can later amend your Action Plan to fund your CDBG-DR/MIT programs at more than 80% by cutting back the allocation to planning and administrative activities.
Clarification on PACs vs. ADCs
When trying to understand what administrative costs are, you may hear HUD refer to two different types of costs: Program Administration Costs and Activity Delivery Costs. Judging by their names, Program Administration Costs (or PACs) could be misinterpreted as “something” related to specific CDBG-DR/MIT programs, while Activity Delivery Costs (or ADCs) could be misinterpreted as “something” non-programmatic. In fact, PACs refer to the administrative costs described in the previous section and ADCs refer to activities where either a grantee or subrecipient performs services directly related to the delivery of a specific CDBG-DR/MIT program or project.
An example of ADCs would be developing application forms or guidelines for how to implement a program. Unlike PACs that are charged to the administrative activity, ADCs should be charged directly to the program(s) they serve, and the associated program(s) must meet a National Objective. Because there may be similarities in the type of costs charged to both ADCs and PACs, you want to check that costs paid for by the federal award are not paid more than once, that ADCs and PACs are not handled interchangeably, and that there is consistent treatment of similar costs. Costs that are related to program activities should not be paid out of the administrative bucket and when reviewing costs you want to clearly document why costs are either administrative or program. Because of the program budget cap on administrative activities, separating program costs from administrative costs can be helpful for financial management.
For some with experience with managing administrative funds, you may notice HUD using the term “Grant Administrative Costs” (or GACs) or other grantees use “Project Delivery.” These terms are the same as “Program Administration Costs” and do not appear to be discernibly different. You can look at this 2019 HUD presentation that references this term.
Allocating direct and indirect costs
A cost may require a proration when it is associated with multiple programs and administrative activities. A simple example would be to consider an individual’s payroll. A person may charge their hours to various programs and management functions under the CDBG-DR/MIT grant. Using available timesheets (labor allocation) or a documented cost allocation methodology (percentage distribution based on workload), the person’s salary can be charged to the correct activity. Understanding the true nature of a cost allows you to determine how that cost is charged to the grant and ensure the right amounts are charged to administrative activities.
If you are managing multiple CDBG-DR/MIT grants, you want to document your cost allocation methodology that allocates administrative costs to the appropriate disaster. Without a methodology, you would not know how to accurately charge for the use of shared services or office space that may be used for the purpose of more than grants.
When managing an administrative activity, direct costs serve the objective of that singular grant objective (CDBG-DR/MIT) and indirect costs can serve the objectives of more than one grant program (CDBG-DR/MIT vs. FEMA vs. other local source). For example, “indirect” staff may be indirectly supporting the operations of the CDBG-DR/MIT grant (executives, purchasing operations, HR staff, etc.) or costs that serve more than one cost objective (rent for office space that can be associated with more than one grant award). You must always be consistent when billing costs for the same purpose as direct or indirect. To charge these costs as indirect, the grantee will either use a de minimis rate of 10% or develop what is called an indirect cost rate (ICR)2; which is applied to a pool of costs (e.g., administrative payroll, administrative costs, or combination of both).
To effectively reimburse any cost to the CDBG-DR/MIT grant, grantees must understand what to charge, what not to charge, and how to document the costs. HUD documentation needs to include vendor invoices, receipts, timesheets, and any other applicable supporting documentation. Documentation should show who is submitting the invoice, what the goods or services are, the level of service, the period of service, the amount to be paid, and any applicable credits.
All costs, whether for administrative, planning, activity delivery, or project cost, must be tied to the qualifying disaster event. If CDBG-DR/MIT funding is used to pay for ineligible items, the funds will need to be repaid to HUD from non-federal sources. One caveat: For planning and administrative activities, you don’t need to meet a National Objective, so costs do not need to be included in the calculation of the overall LMI benefit requirement.
When dealing with subrecipient costs, it is best practice to:
1. Be particularly diligent in understanding why a subrecipient is billing for specific types of work and how that work relates to the grant.
2. Request documentation for the costs associated with prorated rent calculations, staff timesheets, indirect cost rates, and reimbursable costs.
Maximizing planning and administrative funds
We have talked about defining, allocating, and documenting the costs. One question you may have now is how to use this information to maximize the benefit of having planning and administrative funds. What do successful grantees do that we can learn for ourselves? Below are some useful tips you may want to consider:
1. Planning and administrative activities can easily be perceived as a catch-all bucket for costs that do not fit within the program parameters. But that is not the case. There are specific types of costs that can be considered eligible under each activity. It is good guidance to question the purpose of specific cost and how it furthers the objective of a planning activity or meets the definition of a grant management scope. Asking questions about a cost may reveal that it can be appropriately charged to a program instead!
2. If you are thoughtful at the start of the grant about what you charge to your planning and administrative buckets, this will provide options for you later in the grant when you may want to consider moving eligible costs from the program to the administrative bucket. Available grant funding will also allow you to process more Action Plan amendments, hold public hearings, and procure outside expertise for various needs that may come up during the grant until closeout.
3. Some grantees may notice how fast costs end up being charged to administrative activities. Depending on the allocation received, the 5% for administration may seem large but will start to fill up quickly and is also needed for long-term obligations like monitoring and closeout. Owing to that, it is good practice to reserve the maximum allocation possible for administrative activities from the start. If not, grantees may find it harder to reallocate funds from program to administrative activities once those funds have been committed publicly to a certain program. Grantees have to undergo public hearings to get community feedback, ensure that the transfer of funds still satisfies their needs assessment, and get HUD approval. All of which require substantial time that can be spent managing the grant and keeping spending on schedule.
4. Things can get complicated whether you are developing a cost allocation methodology, determining how much to charge as indirect costs, or allocating costs. Make sure you have a process in place to review on the invoice, contract, or DRGR voucher how your planning and administrative funds are being affected. This limits the chance of going above your budget but more importantly will help track the pace of spending against your activities
5. Depends on the applicable Federal Register Notice (FRN), but usually 70% of funds must meet a National Objective and 80% of funds must address needs within the HUD-identified Most Impacted and Distressed (MID) areas. Administration and planning activities are the only CDBG-DR/MIT activities that do not need to meet a National Objective, such that the 70% only applies to the grant amount after deducting administrative and planning funds. For the MID requirement, HUD allows planning and administrative funds to count towards the percentage required but will require justification in the Action Plan for how the funds are used. Refer to applicable FRN or your local HUD representative for questions you make have on meeting these requirements.
For more on this topic, refer to the original guidance in Notice CPD-13-07: Allocating Staff Costs Between Program Administration Costs vs. Activity Delivery Costs in CDBG. Also, check out these helpful presentations (2018 Admin & Planning, 2019 Admin & Planning, 2019 CDBG-DR Basics) and additional tools (Guidance on CDBG-DR Costs) provided from HUD on the HUD Exchange.