Welcome to Feldesman's Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments on our Grants Practice Shorts page.
When grantees acquire or improve property with grant funds, they own title to the property subject to "federal interest." The concept of federal interest is expressed in large part within the Uniform Guidance at 2 C.F.R. § 200.316, which explains that property acquired or improved with federal funds "must be held in trust by the non-federal entity as trustee for the program or project beneficiaries." This interest is directly related to important federal rights in such property, including recovery of a "federal share" of the property's value at disposition, as well as a number of property use and management restrictions addressed in the Uniform Guidance Property Standards. See 2 C.F.R. § §200.200.310 − 200.316. We discuss requirements on use of federally-funded property below and will address other rights, restrictions, requirements and disposition rules in upcoming Shorts. In reviewing the below, note that state agencies and (under the currently pending Uniform Guidance updates) Indian Tribes may be subject to special flexibility.
Use Restrictions − Real Property
The restrictions on use of real property acquired or improved with federal funds are simple and straightforward. According to the Property Standards, the grantee: (1) must use the real property for the originally authorized purpose as long as needed for that purpose, and (2) must not dispose of, or encumber, its title or other interests without prior approval of the federal funding agency. § 200.311(b).
Use Restrictions – Equipment
The Uniform Guidance defines equipment as "tangible personal property (including information technology 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 non-Federal entity for financial statement purposes, or $5,000." § 200.1 (Uniform Guidance amendments effective October 1, 2024 increase the threshold to $10,000; see 89 Fed. Reg. 30047 (April 22, 2024)).
The restrictions on use of equipment acquired or improved with federal funds are more nuanced. According to the Property Standards, the grantee must use the equipment for the program or project for which it was acquired as long as needed, and make the equipment available for use on other projects or programs (e.g., use of vehicles only needed four days per week by the project, etc.), so long as doing so will not interfere with work on the projects for which it was originally acquired, in the following order of preference: (1) other programs or projects supported by the federal awarding agency that financed the original program or project, and (2) other programs or projects funded under awards from other federal awarding agencies. § 200.313(c)(1)−(2).
Use for non-federally funded activities (e.g., use of equipment during off hours) is also permissible, but a user fee should generally be charged. § 200.313(c)(2).The proceeds from that fee will normally be considered program income to the program that originally funded the equipment's purchase. See § 200.307.
If the equipment is no longer needed for the program or project for which it was acquired, then the equipment may be used in other activities supported by the federal awarding agency, in the same order of priority: (1) other programs or projects supported by the federal awarding agency that financed the original program or project, and (2) other programs or projects funded under federal awards from other federal awarding agencies. If not needed for either, the grantee must seek disposition instructions from the awarding agency, unless the fair market value of the equipment has fallen below $5,000 (soon to be $10,000). § 200.313(e)(1).
Use Restrictions – Supplies
The Uniform Guidance defines supplies as "all tangible personal property other than those described in the definition of equipment in this section. A computing device is a supply if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5,000, regardless of the length of its useful life." § 200.1 (again, soon to be $10,000).
Although the Uniform Guidance does not generally specify the manner in which grantees must manage supplies acquired under a federal award, see § 200.314 (Supplies), to the extent practicable, it is best practice for grantees to develop and maintain records of such supplies in a form and manner that safeguards the supplies from loss or damage and reasonably accounts for federal and non-federal shares in overall inventories. Upon project's end, if the inventory of unused supplies exceeds $5,000 (soon to be $10,000) in aggregate value and the non-Federal entity does not need them for any other Federal award, the non-Federal entity may retain or sell them and, in either case, must compensate the Federal government for its share, computed in the same manner as for equipment. § 200.314(a).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.